2019 Integrated Report

MIKE WYLIE CHAIRMAN

It is with great concern that we witnessed further reduction in capacity of the South African construction industry amidst a spate of corporate failures and exits from the market. This is highly detrimental to the health of South Africa as a whole over the short- and longer-term.

The construction sector and especially the civil

WBHO engineering market remain severely depressed, with the larger firms (and highest employers) feeling the most strain and the consequential knock-on impact

INTEGRATED REPORT on suppliers, subcontractors and employees. Lack of work has also led to a reduction in the valuable skilled engineering staff in the various consulting disciplines. 2019

LOUWTJIE NEL CHIEF EXECUTIVE OFFICER

INTEGRATED “WBHO delivered a mixed performance this year. REPORT Particularly pleasing was the successful turnaround 2019 of the Byrne Group in the United Kingdom, a solid performance from our recent acquisition of Russells Limited and our ability to sustain activity levels across Africa in the context of what continues to be one of the toughest markets experienced for many years. Sadly however, these commendable performances were overshadowed by the sizeable losses provided for in Australia.” WWW.WBHO.CO.ZA

C WBHO Integrated Report 2019 NAVIGATIONAL ICONS CONTRIBUTION BY SEGMENT (Rm) The following icons are applied throughout the report to improve usability and to highlight REVENUE CONTENTS integration between relevant content elements: PERFORMANCE 2019 NAVIGATION

1 Performance highlights Indicates a page or note reference Indicates a reference HIGHLIGHTS 2 About our integrated report of information which can be found for information available 2018 elsewhere in the report online at www.wbho.co.za 3 Board responsibility

3 Statement of compliance by 0 5 000 10 000 15 000 20 000 25 000 Company Secretary CAPITALS 4 Message from the Chairman OPERATING PROFIT Financial capital Manufactured capital REVENUE 8 Understanding WBHO 9 Quick facts Human capital Natural capital 2019 9 Vision Social and relationship R41 billion 9 The WBHO Way Intellectual capital capital 2018: R35,0 billion 10 Geographic presence 2018 12 What differentiates WBHO?

STAKEHOLDERS (400) (300) (200) (100) 0 100 200 300 400 13 Creating value CASH GENERATED EARNINGS 14 Value creating business model Building and civil engineering United Kingdom PER SHARE Financial FROM OPERATIONS 18 Material issues and operating context Clients Roads and earthworks Construction materials institutions Australia 32 Engaging and creating value for stakeholders Investors Government 939 cents 38 Strategic objectives R1,5 billion 46 Risk management Employees Communities CONTRIBUTION BY GEOGRAPHY (Rm) 2018: R1,4 billion 2018: 1 534 cents Suppliers and REVENUE 52 Delivering value subcontractors 53 Message from the Chief Executive Officer 2019 OPERATING MARGIN DIVIDEND 58 Operational reports MATERIAL ISSUES 2019 76 Order book and outlook 2018 82 Message from the Reputation and Market dynamics 190 cents Chief Financial Officer culture 1,4% 2018: 475 cents Skills shortages and 0 5 000 10 000 15 000 20 000 25 000 2018: 3,1% Transformation 94 Protecting value capacity constraints

95 Message from the Community unrest Labour unrest OPERATING PROFIT Lead independent director and business forums ORDER BOOK CASH 96 Board of directors Safety and environmental 2019 98 Governance report management Compliance 101 Audit committee report R47 billion R5,9 billion 104 Remuneration committee report 2018: R49 billion 2018: R5,9 billion 105 Remuneration and implementation STRATEGIC OBJECTIVES 2018 report Flexibility and Capacity and talent SO1 SO4 (400)(300)(200)(100) 0 100 200 300 400 500 600 116 Reference information diversification management 116 Abbreviations and acronyms South Africa Australia Procurement and Safety and environmental Rest of Africa United Kingdom 116 Financial definitions SO2 execution excellence SO5 management 117 Shareholders’ diary Reputation and Localisation and WWW.WBHO.CO.ZA IBC Statutory information SO3 relationships SO6 transformation

WBHO Integrated Report 2019 F WBHOWBHOIntegratedIntegrated Report Report 2019 2019 1 1 WBHO is one of the largest construction companies in southern Africa REPORTING SUITE and is listed on the Johannesburg Stock Exchange. WBHO remains committed to reporting transparently to a wide range of stakeholders. To view the full suite, please visit Our vision is to be the leading construction company wherever we operate. BOARD RESPONSIBILITY the website www.wbho.co.za.

The driving force behind WBHO is a core of dedicated, hands-on Integrated Report (IR)

WBHO The integrated report is the primary report to the INTEGRATED REPORT

The board acknowledges its responsibility of ensuring 2019 management professionals whose experience spans decades of major stakeholders. It is structured to show the relationship

INTEGRATED the integrity of this integrated report, which in the 2019 REPORT between the interdependent elements involved in the construction projects across three continents. board’s opinion addresses all the issues that are C WBHO Integrated Report 2019 material to the group’s ability to create value and value creation story, in compliance with: Construction activities, that cover the full construction spectrum, are presents the integrated performance of WBHO fairly. • The International Integrated Reporting (IR) This report was approved by the board of directors of Framework divided into three main operating divisions: Building Construction, WBHO on 23 October 2019. • The Companies Act, No 71 of 2008, as amended (Companies Act of South Africa) Civil Engineering and Roads and Earthworks. WBHO’s ofﬁ ces are The board acknowledges its responsibility for the • The JSE Listings Requirements strategically located in Johannesburg, Cape Town, Durban and completeness and integrity of this report and its • King IV report on Corporate Governance for supplementary information. Assisted by its Audit South Africa 2016 (King IVTM) Port Elizabeth. Our Australian subsidiary, Probuild, has its committee, the board has applied its collective mind to the preparation and presentation of this report and headquarters in Melbourne, while our United Kingdom (UK) operations concluded that it is presented in accordance with the International Integrated Reporting Framework. provide services out of London and Manchester. Group Annual Financial Statements (AFS) This integrated report was approved by the board and A comprehensive report of the Group’s financial signed on its behalf by: performance for the year, in compliance with: AUDITED CONSOLIDATED FINANCIAL 2019 STATEMENTS • The Companies Act of South Africa

WBHO Audited Consolidated Financial Statements 2019 B • The JSE Listings Requirements • King IVTM • International Financial Reporting Standards (IFRS) ABOUT OUR INTEGRATED REPORT Mike Wylie Louwtjie Nel Chairman Chief Executive Officer

23 October 2019 Environmental, Social and Governance

The directors of Wilson Bayly Holmes-Ovcon Limited (WBHO) WBHO ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT INTEGRATED THINKING AND MATERIALITY Report (ESG) hereby present the 2019 integrated report. This report is prepared in The value creation story (see page 13 to 46) is structured to reflect

2019 A detailed account of WBHO’s performance for

ENVIRONMENTAL, SOCIAL AND 2019 GOVERNANCE accordance with the International Integrated Reporting Council’s REPORT the relationship between the various elements involved in achieving the year, including environmental, social and (IIRC) International Integrated Reporting Framework (IR framework) stakeholder goals. By analysing the risks and opportunities C WBHO Environmental, Social and Governance Report 2019 governance elements, in compliance with: and provides stakeholders with a concise and transparent identified in the operating context, stakeholder engagement assessment of WBHO’s ability to use its expertise to create STATEMENT OF • The Companies Act of South Africa process and internally identified risks and opportunities, the group • The JSE Listings Requirements sustainable value. has determined which matters are most important to WBHO’s TM value creation in the short-, medium- and long-term. WBHO has • King IV SCOPE AND BOUNDARY used these as points of reference to ensure only those matters that COMPLIANCE BY • Global Reporting Initiative (GRI core) REPORTING PERIOD could have a substantial effect on the ability to deliver stakeholder The WBHO integrated report (IR) is prepared and published value are reported on. annually. This report provides material information relating to our strategy and business model, operating context, material risks, COMBINED ASSURANCE COMPANY SECRETARY Notice of annual general meeting (AGM)

stakeholder interests, performance, outlook and governance, WBHO Supporting information for shareholders to WBHO applies a combined assurance model to assess and assure INTEGRATED REPORT covering the year 1 July 2018 to 30 June 2019. Any material events 2019 participate in the annual general meeting, in various aspects of the business operations, including elements of NOTICE OF 2019 ANNUAL GENERAL after this date and up to the board approval date of 23 October external reporting. These assurances are provided by management MEETING compliance with: C WBHO Integrated Report 2019 2019 have also been included. and the board, internal audit and independent external auditors, • The Companies Act of South Africa I confirm that the company has lodged all returns, in respect BDO South Africa Incorporated. There were no significant • The JSE Listings Requirements of the year ended 30 June 2019, that are required to be OPERATING BUSINESS restatements from prior periods and external assurance has not • King IVTM The report covers the primary activities of the group, its business been sought on the non-financial disclosures made in this report. lodged by a public company in terms of the Companies Act clusters, key support areas and subsidiaries in the African, Australian of South Africa with the Registrar of Companies, and that all and UK operations. The acquisition of Russells Limited in the UK was The Audit committee is responsible for overseeing the content such returns are true, correct and up to date. effective in July 2018 and the financial results have been incorporated of this report and recommended the report to the board for its into this IR since that date. Detailed information on investments in approval. which the group holds only a minority stake is not included. FORWARD-LOOKING STATEMENTS FINANCIAL AND NON-FINANCIAL REPORTING This report contains certain forward-looking statements with Shereen Vally-Kara The report extends beyond financial reporting and includes respect to WBHO’s financial position, results, operations and Company Secretary non-financial performance, opportunities, risks and outcomes businesses. These statements and forecasts involve risk and attributable to, or associated with, key stakeholders, that have a uncertainty as they relate to events and depend on circumstances 23 October 2019 significant influence on WBHO’s ability to create value. that occur in the future. There are various factors that could cause actual results or developments to differ materially from those TARGETED READERS expressed or implied by these forward-looking statements. The report is the primary communication to stakeholders and Consequently, all forward-looking statements have not been is intended to address the information requirements of the reviewed or reported on by the group’s auditors. FEEDBACK shareholders. The group also presents information relevant For further information, please direct your questions, to other key stakeholders, including staff, clients, government comments or suggestions to the group Company and communities. Secretary, Shereen Vally-Kara on 011 321 7200 or [email protected].

2 WBHO Integrated Report 2019 WBHO Integrated Report 2019 3 MESSAGE FROM THE CHAIRMAN Our expansion into the UK construction market has yielded The industry has lost well educated, experienced and positive results and we are seeing the benefits from our entry into hard-working professionals that are highly sought after this market. The turnaround of the Byrne Group within 12 months worldwide. Minimal opportunities locally, combined with an was satisfying, and for the foreseeable future we will focus on increase in unrest and disruptions from communities, business extracting further operational efficiencies. The Russells businesses forums and taxi associations, have provided the impetus for both performed well in their first year as part of the group. these skills to leave the country.

THE CONSTRUCTION INDUSTRY AND ITS Urgent intervention is necessary to curb the current flight of skills and preserve what remains of our capacity. ROLE IN THE SOUTH AFRICAN ECONOMY It is with great concern that we witnessed further reduction in TRANSFORMATION capacity of the South African construction industry amidst a The construction industry is almost completely transformed and is spate of corporate failures and exits from the market. This is certainly the most transformed sector in South Africa. It is crucial highly detrimental to the health of South Africa as a whole over that government recognises the importance of a strong the short- and longer-term. construction industry for growth and employment. MIKE WYLIE Investment in infrastructure in any country is vital for economic The Construction Industry Development Board (CIDB) monitor development and job creation. Infrastructure is the key to a modern below shows that 70 to 90% of construction companies from economy as it has a direct effect on the reduction of costs of inputs grade 1 to 8 are more than 51% black owned. into production processes and the improvement of productivity, contributing positively to South Africa’s competitiveness. CIDB Construction Monitor – Transformation In the South African economy, characterised by high levels of (January 2017) This is my last chairman’s message. I am unemployment and a, the construction industry is able to employ a disproportionate amount of citizens. While the construction therefore pleased to report that WBHO has had industry contributes on average 3,5% to GDP, it contributes 8,3% to total employment. Government spend into the construction Grade 9 another very good year breaking through the industry will transmit employment benefits far and wide and quickly. There are positive signs and our President’s PPGI (Public Grade 7 and 8 Private Growth Initiative ) is one of them. R40 billion turnover threshold for the first time. Grade 5 There has been a noticeable trend where available government-led and 6 But for the miscalculations on the Western projects are being packaged to favour smaller contractors. The government’s and SOE’s efforts to support emerging contractors Grade Roads Project in Melbourne Australia, our is commendable, however, we and other large contractors have 2 to 4 well entrenched enterprise development programmes which ensure smaller contractors receive a large portion of our work (in 0 20 40 60 80 100 profit would have exceeded the previous year. our case almost 40%), while at the same time are supported both Civil engineering General building technically and financially. By giving work directly to small companies in the current market without this support, government is, in many cases, setting them up for failure. Since this monitor was published, the percentage of black- Exacerbating the situation is the inconsistent, and sometimes owned grade 9 contractors has increased. Murray and Roberts illegal, application of transformation-driven procurement rules. and Aveng have sold their construction businesses to black Many state-owned entities have adopted their own transformation owners and Group Five and Basil Read are in business rescue agendas based on objectives which are often not in alignment with and will cease construction activities. WBHO and Raubex are current legislation or policy. amongst the few remaining grade 9 contractors and were first and second out of all JSE-listed companies in a recent The construction sector and especially the civil engineering empowerment survey by Empowerdex. market remain severely depressed, with the larger firms (and highest employers) feeling the most strain and the consequential knock-on impact on suppliers, subcontractors and employees. Lack of work has also led to a reduction in the valuable skilled engineering staff in the various consulting disciplines.

4 WBHO Integrated Report 2019 WBHO Integrated Report 2019 5 MESSAGE FROM THE CHAIRMAN CONTINUED LAKESIDE OFFICE Within our own business, it has been pleasing to note the growth APPRECIATION in black representation at middle and senior management levels My time at WBHO has drawn to an end. I recently announced my New ofﬁ ces for Exxaro in South Africa. WBHO employs 839 built-environment graduates retirement following an amazing journey spanning more than four consisting of two basements, of whom 483 (58%) are black and 151 (18%) are female. decades with the company. Over the years I have met and worked a mezzanine level and six Particularly pleasing, is that we have more black registered with some remarkable people, all of whom have contributed to professional engineers (125) than white (81) and another 61 black WBHO’s phenomenal success. Thank you to my WBHO family for levels of ofﬁ ce space engineers are registered professional engineering candidates. your support and guidance and, as importantly, thank you to my This trend bodes well for future senior management positions wife, Wendy, and sons, James and Bruce, who have always been within the business. there for me. PROJECT VALUE

Our procurement spend is managed and monitored on an In support of WBHO’s policy of management continuity, the board ongoing basis, ensuring that spending is directed towards appointed our CEO, Louwtjie Nel, as Executive Chairman, thereby R411 million black-owned businesses, black women-owned businesses, ensuring the continued constructive and effective relationship qualifying small and micro-enterprises and other sufficiently between the board and Executive Management. Wolfgang Neff will empowered businesses early on in the bidding phase of replace Louwtjie as CEO. Wolfgang joined WBHO 22 years ago PROJECT DURATION projects. WBHO spends 80% of its total measured procurement and has been the Managing Director of our largest building division on B-BBEE compliant companies, where this year alone an for the past seven years. I wish Louwtjie and Wolfgang well in their amount of R4,5 billion (FY2018: R3,6 billion) was spent with new roles and leave with the absolute confidence that the group is black-owned business of which R1,65 billion (FY2018: in very good hands. 18 months R1,1 billion) was spent with black women-owned businesses. In addition, we note that 37,3% of all procurement spend was spent on EME and QSE companies amounting to R3,45 billion. Mike Wylie WBHO has been a leader in this transformation process for Executive Chairman over 20 years and for me to retire with the industry almost fully transformed is extremely satisfying. A constant challenge is to obtaining government’s recognition of our progress and commitment. As a leading advocate for transformation within the industry, this lack of acknowledgement has been exceptionally disappointing.

EFFECTIVE GOVERNANCE WBHO strives to progressively strengthen governance and implement the requirements of new global and local policies and regulations as promulgated by the various regulators and institutions in a meaningful and practical way. The board continues to consider all aspects of governance ensuring independent assurance is obtained where appropriate, all of which is aimed at improving the overall functioning of the group.

OUTLOOK The group’s order book overall remains healthy at R47 billion. While general construction markets across Africa are not expected to improve significantly over the short term, there has been a noticeable increase in large-scale public infrastructure opportunities in South Africa which will support the local industry over the medium-term. The award of the first gas-related infrastructure projects in Mozambique, on what is considered one of the largest projects of its kind for the African continent, offers exciting future opportunities in that region. In Australia, construction demand will likely remain robust over the next few years. Our investment into the Manchester market through Russells Construction appears to have been well-timed, with strong volumes of work on hand, and the Byrne Group is back on a solid footing. Overall the group is well positioned for the year ahead.

6 WBHO Integrated Report 2019 WBHO Integrated Report 2019 7 UNDERSTANDING WBHO I CREATING VALUE I DELIVERING VALUE I PROTECTING VALUE

UNDERSTANDING QUICK FACTS

WBHO ESTABLISHED LISTED ON THE JSE MARKET CAPITALISATION B-BBEE STATUS 1970 1994 R9 billion Level 1 9 Quick facts 9 Vision 9 The WBHO Way 10 Geographic presence To be the leading construction company wherever we operate, always striving to be 12 What differentiates WBHO? “a pleasure to do business with” by delivering quality solutions in a professional and collaborative manner, every time. We are adaptable enough to “go where the work is” even when conditions are challenging, without compromising our standards. VISION We navigate competitive market conditions by being ﬂ exible and hard working. We focus on nurturing strong client relationships by being approachable and dependable and stand ﬁ rmly behind our motto of “Rely on our ability”.

Our culture and shared values are enshrined in our Code of Conduct. They are a set of guiding principles known THE WBHO WAY collectively as “THE WBHO WAY.”

1 2 3 4 5 REPUTATION QUALITY COST- TEAMWORK CULTURE Our reputation is one of our Quality is of utmost We are a team. We succeed We have a positive, “can greatest assets. We actively importance to the group AWARENESS together. When we can help do” attitude and always work to build a reputation of and both management and our colleagues, we do. When “go the extra mile” for excellence in our people, employees must pursue Management and we need help, we ask. We do our clients. We are systems and products. If this at all times. employees have a not ignore a colleague who flexible, dependable, our actions in any way Performance of duties responsibility to consider needs our assistance, even if hardworking and a contravene our shared should be at the expected efficiencies where possible, they have not asked for our “pleasure to do business values of teamwork, level of skill, knowledge, such as cost cutting, value help. We are also willing to with”. communication, integrity experience and engineering and any other participate in activities and and excellence, it can judgement. methods that provide our projects that promote adversely impact on our stakeholders with quality WBHO. positive reputation. structures within set budgets. This responsibility includes taking due care, avoiding waste, and minimising the misuse or abuse of company assets, while limiting the risks to suppliers and subcontractors who engage in projects for the group.

8 WBHO Integrated Report 2019 WBHO Integrated Report 2019 9 UNDERSTANDING WBHO I CREATING VALUE I DELIVERING VALUE I PROTECTING VALUE

GEOGRAPHIC PRESENCE

EASTERN REGION

WESTERN REGION BRISBANE (QUEENSLAND)

MANCHESTER PERTH (WESTERN AUSTRALIA) SYDNEY (NEW SOUTH WALES)

GUINEA BURKINA FASO MELBOURNE (VICTORIA) LONDON SIERRA LEONE GHANA

AFRICA UNITED KINGDOM AUSTRALIA ZAMBIA

REVENUE REVENUE REVENUE R13,2 BILLION R5,7 BILLION R21,7 BILLION NAMIBIA BOTSWANA OPERATING PROFIT OPERATING PROFIT OPERATING PROFIT MOZAMBIQUE R668,5 MILLION R228,0 MILLION R335,2 MILLION LOSS SWAZILAND NUMBER OF EMPLOYEES NUMBER OF EMPLOYEES NUMBER OF EMPLOYEES 9 855 LESOTHO 1 127 1 139 SOUTH AFRICA

BUILDING AND CIVIL BUILDING ENGINEERING

ROADS AND EARTHWORKS INFRASTRUCTURE AND CIVIL ENGINEERING

10 WBHO Integrated Report 2019 WBHO Integrated Report 2019 11 WHAT DIFFERENTIATES WBHO? CREATING VALUE 1 2 3 4 5 6 STRONG RESPONSIVE CONSERVATIVE CAPABILITY BROAD ABILITY to pursue opportunities to consistently execute 14 Value-creating business model CULTURE SENIOR APPROACH across numerous and deliver large-scale geographies TECHNICAL projects 18 Material issues and operating context of professionalism management with to risk taking outside and sector and respect extensive industry of traditional construction specialisation 32 Engaging and creating value for stakeholders experience skills set 38 Strategic objectives 46 Risk management SERVICES OR PRODUCTS

We deliver our products and services through four business lines:

BUILDING AND CIVIL Industry-leading teams with the ability to execute major public and ENGINEERING private projects across numerous sectors in Africa, Australia and the United Kingdom.

Versatile and agile teams attuned to the intricacies of doing business in ROADS AND Africa with a modern fleet of plant supported by experienced logistics staff. EARTHWORKS We provide extensive services for major public and private sector projects across various infrastructural applications.

This team has developed the necessary internal expertise and strategic PROJECTS partnerships with local and international service providers to implement turnkey projects that create value and minimise risk for our clients, as well as procuring work for other business units within the group.

Operations that manufacture, supply and install long-steel products to the CONSTRUCTION South African construction market. MATERIALS

12 WBHO Integrated Report 2019 WBHO Integrated Report 2019 13 UNDERSTANDING WBHO I CREATING VALUE I DELIVERING VALUE I PROTECTING VALUE

The construction business model consists of the simultaneous, continuous VALUE-CREATING BUSINESS MODEL and inter-linked processes of project procurement and execution.

INPUTS OUTPUTS AND ACTIVITIES CREATING VALUE FOR OUR STAKEHOLDERS

FINANCIAL CAPITAL 2019 2018 R5,9 billion in capital and reserves CLIENTS Long-term funding of R193 million Strategic planning, supported by risk management and SERVICES OR PRODUCTS SECTORS Number of projects completed in the year 158 122 It is during the execution or operational phase that the strong governance, is integral to the procurement Total value of projects completed in the year R22 billion R16 billion R6,0 billion in cash resources brand and reputation of the group is created and process. The group leverages its knowledge, skills and reinforced. Our reliability, delivery and quality, as well as our Value of order book R47,3 billion R49,2 billion R15,1 billion of guarantee facilities available expertise, brand equity, reputational strength and competence to establish and nurture relationships, support Client satisfaction with quality of work delivered 88% 89% financial health to secure projects in the furtherance of our motto of being “a pleasure to do business with”. BUILDING • Retail Number of quality audits conducted 223 159 its strategic objectives. INTELLECTUAL CAPITAL AND CIVIL • Residential Capital expenditure R374 million R316 million Skilled, experienced and technically ENGINEERING • Commercial qualified employees, industry • Healthcare INVESTORS AND FINANCIAL INSTITUTIONS thought leaders and experts • Hotels and Operating profit R0,5 billion R1,0 billion

entertainment

A PIPELINE FOR Cash retained by operating activities R1,1 billion R928 million

Business

processes and

• Civil works and

OPERATIONS AND IMPACTS management systems Headline earnings per share (cents) 932,2 1 414,6 mining infrastructure ON PERFORMANCE H I P M A Dividend per share (cents) 190,0 475,0 R S N A • Industrial D E G E Return on capital employed 12,4% 19,8% HUMAN CAPITAL E A M • Energy infrastructure L E N Gearing ratio 2,7% 2,9% An engaged and productive T E E workforce of 12 121 people with S X relevant skills, knowledge and ROADS AND • Road works EMPLOYEES

FLEXIBILITY RELIABILITY E

experience A EARTHWORKS • Mining infrastructure Amount paid in salaries, wages and benefits R5,8 billion R4,7 billion

H C • Rail infrastructure

A strong culture of performance Number of work-related employee fatalities 1 1

embedded – The WBHO Way P U • Energy infrastructure Number of retrenchments 634 332

• Water infrastructure

T Recordable case rate (RCR) 0,28 0,93

T P • Oil and gas Person-days production lost 22 379 19 835

E I Y R

MANUFACTURED CAPITAL G F Investment in employee learning R91,2 million R85,7 million

O N

E O

T Investment in bursary schemes R6,8 million R7,0 million

Plant and equipment of R

A N E M

PEOPLE R DELIVERY Number of bursaries 118 95

(carrying amount) A

R1,9 billion T

N • Concession S

PROJECTS

M C

Presence in 13 countries E

P arrangements

E SUPPLIERS AND SUBCONTRACTORS

• Turnkey projects H

R Total procurement spend with black businesses R4,5 billion R3,7 billion

• Design and construct

Procurement spend with black women-owned businesses R1,7 billion R1,2 billion

U projects

SOCIAL AND

S Number of work-related subcontractor fatalities 2 2

C • Engineer, procure, RELATIONSHIP CAPITAL G O E Supplier inspections 106 173

V construct projects

Strategic partnerships with clients, O E RELATIONSHIPS QUALITY Supplier audits 58 89

R • Public-private

R N

subcontractors and suppliers A E N L BRAND, REPUTATION AND partnerships P P Order book of R47,3 billion at the C E O P E PERFORMANCE IMPACT GOVERNMENT AND COMMUNITIES end of the year ON PROCUREMENT Taxes (direct and indirect) paid to South African government R2,9 billion R2,4 billion Continuous engagement with our CONSTRUCTION • Reinforced steel Broad-Based Black Economic Empowerment status Level 1 Level 1 communities, governments and MATERIALS products regulators Spending on socio-economic development R3,6 million R5,3 million Total carbon emissions (CO e equivalent) (tCO e) 58 737 47 968 ISO 9001 and OHSAS 18001 2 2 Waste recycled (tonnes) 62 215 11 003 compliant Number of reportable environmental incidents – –

NATURAL CAPITAL Member of Green Building Council SUPPORT PROCESSES SUPPORT PROCESSES of South Africa ISO 14001 compliant HUMAN HEALTH AND QUALITY ENVIRONMENTAL INFORMATION FINANCE AND RISK COMPLIANCE RESOURCES SAFETY MANAGEMENT TECHNOLOGY TREASURY MANAGEMENT AND LEGAL

14 WBHO Integrated Report 2019 WBHO Integrated Report 2019 15 WBHO Integrated Report 2019 16 UNDERSTANDING WBHO I CREATING VALUE I DELIVERING VALUE I PROTECTING VALUE 155 WEST MATERIAL ISSUES AND OPERATING CONTEXT

The material issues represent the matters that have the most impact on WBHO’s ability to create value. These may change over STREET time as new trends and developments shape the macro environment and stakeholders’ needs evolve.

2 The following diagram outlines the basic process through which the group determine its material issues. While there are three Refurbishment of 6 500m discernible steps or phases to the process, these are not distinct and separate, but overlap and are simultaneous. It is, essentially, commercial offi ce space with a continuous, cyclical process and the output (the group strategy set by the board) is regularly reviewed and adjusted based on the six fl oors and fi ve basements feedback received from the operational divisions responsible for its implementation.

PROJECT VALUE

R95 million HOW WE DEFINE OUR MATERIAL ISSUES

Compliance PROJECT DURATION STAKEHOLDER ENGAGEMENT OPERATING CONTEXT AND ENTERPRISE RISK STRATEGY Market 9 months THE BOARD Community unrest dynamics

REMUNERATION COMMITTEE AUDIT COMMITTEE RISK COMMITTEE SOCIAL AND ETHICS COMMITTEE

STAKEHOLDERS EXECUTIVE COMMITTEE

OPERATIONAL RISK COMMITTEE Skills INPUT INPUT OUTPUT shortages and Transformation MATERIAL DIVISIONAL MANAGEMENT capacity ISSUES constrains OPERATIONAL MANAGEMENT

STAGE STAGE STAGE 1 2 3 Reputation Labour and culture unrest IDENTIFY EVALUATE PRIORITISE Safety and The first phase in the process is The second phase is the evaluation of The third phase is prioritising the environmental identifying issues that are both the information that has been concerns that have been identified substantive and material. This phase gathered. This phase consists of both to establish the issues that are management consists of gathering information informal and formal reporting channels most material to the group. from clients and other stakeholders and is guided by the current strategic through formal and informal, regular priorities of the group. In essence, Ultimately, this task is performed and ad hoc interactions (further management and the relevant by the board, based on the reports detail regarding our engagement departments (such as risk and internal it receives from the various with stakeholders is presented on audit) feed the insights that are being mandated committees. This is a page 32 of this report). These gleaned from around the business into regular process that happens at The group prioritises the eight issues illustrated above, which each have a material impact on wbho’s ability to insights are then incorporated into the relevant committees for further least once during every reporting WBHO’s risk management deliberation and appraisal; in particular, period and results in an updated create value. A new material issue was added in the year which relates to the heightened disruptions experienced processes along with prevailing the Operational risk committee, the strategic risk matrix and, where from business forums, also known as the “construction mafia”, and growing demand by communities to participate economic and market- related Audit committee, the Risk committee, necessary, new or revised in projects across South Africa. Other than this, there have been no significant changes to the scope of the material conditions, and all relevant and the Executive committee (the work strategic initiatives (our strategic issues from the previous year. operational, legislative and regulatory of the board committees is reported issues and objectives for the requirements in order to ascertain on page 98 to 104 of this report). reporting period are discussed on the materiality of each issue. page 38 to 44 of this report).

WBHO Integrated Report 2019 17 18 WBHO Integrated Report 2019 WBHO Integrated Report 2019 19 UNDERSTANDING WBHO I CREATING VALUE I DELIVERING VALUE I PROTECTING VALUE

MATERIAL ISSUES AND OPERATING CONTEXT CONTINUED

MARKET DYNAMICS

A WELL-DIVERSIFIED GEOGRAPHICAL AND SECTOR PORTFOLIO TO MITIGATE DOWNTURNS REST OF AFRICA The various sectors and geographies within which the group operates each have their own intrinsic risk profiles and associated The overall economic recovery in sub-Saharan Africa continues, however, growth and prospects vary significantly within the region. margins, while being exposed to differing effects from prevailing global and local economic cycles. The group’s operations in the rest of Africa largely target the resource-intensive sectors countries of Botswana and Zambia in southern Africa, Mozambique in East Africa and Ghana in West Africa, while entering other territories in the region on a project-by- SOUTH AFRICA project basis. In South Africa, the year was characterised by persistent low growth and weak business confidence. Real gross domestic product (GDP) grew at a subdued rate of 0,8% for the 2018 calendar year, contracted sharply by an annualised 3,2% in the first quarter of Construction opportunities generally following commodity demand cycles in resource-intensive countries. Improved copper and 2019 and then recovered partially over the second quarter. Gross fixed capital formation also continued to decline with capital diamond prices have supported activity in Botswana and Zambia and the discovery of gas resources off the coast of Mozambique has contributed to a significant increase in demand for gas and other supporting infrastructure in the country. In West Africa, improved outlays by public corporations and general government declining by 4,4% and 12,5% respectively while capital spending by private gold and iron-ore prices bolstered appetite for new capital projects with a simultaneous increase in requests for budget pricing. business enterprises grew by a modest 2,2% in 2018. However, the loss of momentum in global expansion has led to a reduction in the demand for raw materials and appears to South Africa: Annual GDP growth (%) have hindered the ability of junior mining houses to obtain the necessary financing to unlock these projects. South Africa: Annual GDP growth (%) Large-scale public infrastructure projects across Africa generally require external funding models as corruption, elevated debt 3,5 levels and non-performing loans continue to weaken financial systems.

3,0 AUSTRALIA 2,5 Australia recorded its tenth consecutive year of economic growth in excess of 2% per annum, with 2,8% achieved in 2018. Strong population growth and increased urbanisation continue to support both building and infrastructure markets. As a result, the ASX200 2,0 Industrial index, which includes the construction sector, continues to outperform the general market index. 1,5 Australia: Real Annual GDP growth (%) 1,0

0,5 5

0 4 2011 2012 2013 2014 2015 2016 2017 2018

3 Source: Statistics South Africa (June 2019 release) and South African Reserve Bank.

2 In the 2018 integrated report, we highlighted the impact of such sustained weak economic growth and the concomitant lower levels of both private and public investment on the local construction industry. Construction activity has generally diminished 1 across all sectors. Fewer and smaller available projects induced stiff competition and keen bidding which have translated into lower margins and an increased prevalence of loss-making projects. Further corporate failures in the current year are reflected 0 in the deteriorating performance of the industry against that of the wider market over the last five years with more than 60% of 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 shareholder value being eroded. Source: IMF and World Bank. Construction and Materials Index vs All Share Index The current economic strength has allowed for increased levels of public spending to provide the necessary infrastructure 20 upgrades to meet the high levels of urban expansion. Following the recent housing boom and concerns over housing affordability, 10 a correction in residential markets is currently underway. Non-residential building activity is expected to experience stable growth 0 over the next three years. Investment in Melbourne and Sydney remains positive with vacancy rates at 10-year lows. The focus on mixed-use developments combining retail, hotel and office space are resulting in an increase in ‘mega projects’. Overall, pressure (10) on retail remains, as online activity continues to disrupt the sector. However, there are opportunities for the building market to (20) recapture some of this spend through the redesign logistical supply chains. (30) (40) (50) (60) 2014 2015 2016 2017 2018 2019

All Share Index Construction and Materials Index

20 WBHO Integrated Report 2019 WBHO Integrated Report 2019 21 UNDERSTANDING WBHO I CREATING VALUE I DELIVERING VALUE I PROTECTING VALUE

MATERIAL ISSUES AND OPERATING CONTEXT CONTINUED

MARKET DYNAMICS (continued)

ASX200 Industrial Index versus ASX 100 FTSE Construction and material Index versus FTSE All Share Index

80 80

60 60

40 40

20 20

0 0

(20) (20) 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019

ASX 100 Industrial FTSE Construction and materials FTSE All Share

UNITED KINGDOM IMPLICATIONS FOR VALUE Growth in the United Kingdom has moderated since the 2016 Brexit referendum with 1,4% achieved in 2018. This has shifted the Economic activity, GDP and gross domestic fixed investment (GDFI) growth, government expenditure, interest rates and consumer UK from the top to near bottom of growth rates achieved by G7-countries. and business confidence all impact on spending patterns and the required infrastructure to meet these trends. This, in turn, impacts the awarding of construction contracts, capacity utilisation and margins across all business segments. WBHO operates in United Kingdom: Real Annual GDP growth (%) South Africa, the rest of Africa, Australia and the United Kingdom.

3,5 ASSOCIATED RISKS 3,0 • Ever-changing market conditions • Rapid growth or decline in work procured 2,5 • Political instability 2,0 • Rand volatility • Overexposure to individual sectors/regions/clients 1,5 • Overtrading in economic upturns • Volatile earnings and margins 1,0 • Payment risk 0,5 • Working capital risk • Erratic investor sentiment 0 2010 2011 2012 2013 2014 2015 2016 2017 2018

The Construction and Materials Index in the UK has outperformed the overall market since the beginning of 2015, reflecting the Strategic response Key stakeholders impacted favourable levels of both public and private investment in commercial and residential construction markets over the period. The graph does however highlight the knee-jerk reaction (and subsequent partial recovery) resulting from the general uncertainty SO1 Flexibility and diversification Investors surrounding Brexit, with the impact felt more keenly by the construction sector.

The outcome of the Brexit negotiations remains the most significant risk to the economic growth outlook for the country. Activity SO2 Procurement and execution excellence Employees within the London construction market showed signs of tapering over the last quarter of the year with fewer available opportunities. However, the Manchester market continues to grow, with the city considered to be one of the fastest growing in Europe. Population Suppliers and subcontractors growth, tourism and the migration of a number of large corporations from London is resulting in the development of entire new neighbourhoods, as well as the redevelopment of a number of inner-city precincts. This has supported construction activity across all sectors including residential, commercial offices, hotels, education and student accommodation.

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MATERIAL ISSUES AND OPERATING CONTEXT CONTINUED

SKILLS SHORTAGES AND CAPACITY CONSTRAINTS LABOUR UNREST

EXPERIENCED MANAGEMENT AND COMPETENT ARTISANS ARE CRUCIAL TO PROJECT EXECUTION LABOUR UNREST CAN IMPACT OPERATIONS SIGNIFICANTLY The construction industry is a fluctuating sector, often faced with a shortage or oversupply of skills depending on the amount of The construction industry employs a sizeable labour force, either directly or through the use of subcontractors. The labour work available. Managing the gap between the work on hand and the people required is essential. Efficient project execution is environments in all geographies in which we operate can be highly politicised and sensitive. On-site disruptions can, on dependent on experienced management teams and competent artisans. occasion, present a threat to other employees, particularly in South Africa where the use of local labour from communities nearby projects is prescribed contractually. In addition to this potentially threatening environment, work stoppages impact The retention of engineers and quantity surveyors is a key focus area for WBHO. Without an adequate supply of experienced productivity and create project delays. engineers and quantity surveyors, project execution risk and commercial risk increases significantly. Unfortunately, the ongoing low economic growth in South Africa as well as the increased risk to the personal safety of construction professionals and workers (see In respect of our core labour teams, it is essential to maintain transparent, cordial and professional relationships with trade unions Material Issue: Community unrest and business forums for more), has led to an increase in the emigration of engineering and their on-site representatives. professionals to countries that are considered safer and offer better career prospects. Furthermore, the decimation of a number of The overall level of union representation within the group has decreased to 19% (FY2018: 22%) and mainly affects the South large construction companies in the country has created a vacuum in the training provided across all construction skill levels, African and Australian businesses. The decline in collective bargaining coverage and union representation is mainly due to the which does not bode well for the industry when the economic cycle turns and construction activity increases. reduction in headcount that occurred during the year in South Africa. Secondment of operational staff to regions far from home, particularly West Africa, remains a challenge, where long periods away In South Africa, 65% of employees are covered by collective bargaining agreements which is 3% down from FY2018. Wage are required. In addition, personnel are often headhunted for their experience and skill and motivated by dollar-based negotiations are conducted and concluded centrally at the bargaining council annually. remuneration. However, the recent decline in activity has mitigated this impact to a large extent. In Australia, 12% (FY2018: 14%) of the Australian employees are covered by collective bargaining agreements. Enterprise bargaining In Australia, the current high levels of market demand for skilled construction workers continues to place pressure on main contractors agreements (EBA) are currently annually concluded with state-based unions to enable compliance with legislative changes. This also and subcontractors to secure adequate levels of construction professionals and skilled labour for current and future projects. These enables the Australian business to remain qualified to work on state federal-funded projects. shortages are also contributing toward margin pressure on construction projects as remuneration levels become inflated. Employees in the United Kingdom do not form part of a central bargaining council. Employees are able to join a union directly but fees In the United Kingdom, construction is a major sector of the UK economy, employing in excess of two million people in the country. are paid by the individuals themselves. Membership lists to unions are not maintained by the UK businesses. The construction industry is facing a new challenge as it is anticipated to face a skills shortage in the next decade. The recruitment of new talent is failing to keep up with the rate of retirement which is exacerbated by existing skills and experience being lost to IMPLICATIONS FOR VALUE other sectors offering more stable work conditions and in some instances, improved remuneration. Union and wage negotiations must thus be carefully managed. The ability to conclude wage agreements assists in providing IMPLICATIONS FOR VALUE predictability when forecasting costs, ensures consistent application of employment practices and minimises disruptions. Developing and retaining skilled personnel is critical to our ability to deliver quality projects, grow as a company, and prevent ASSOCIATED RISKS delays, costs and loss of key staff. • Industrial action • Additional costs, penalties and project delays ASSOCIATED RISKS • Reduced productivity • Impact on quality, delivery and reputation • Negative investor perceptions • Additional costs and delays on projects • Capacity constraints/excess • Impact on company culture • Loss of key personnel Strategic response Key stakeholders impacted

SO3 Reputation and relationships Clients Strategic response Key stakeholders impacted SO4 Capacity and talent management Employees SO4 Capacity and talent management Clients

SO2 Procurement and execution excellence Employees

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MATERIAL ISSUES AND OPERATING CONTEXT CONTINUED

SAFETY AND ENVIRONMENTAL MANAGEMENT REPUTATION AND CULTURE

INTENSIFYING PRESSURE FROM STAKEHOLDERS FOR ENHANCED RESPONSIBILITY A POSITIVE REPUTATION AND CREDIBILITY GENERATES REPEAT WORK Construction is inherently dangerous in nature and WBHO has a duty to ensure the very highest health and safety standards The appointment of competent and reliable contractors is critical for clients to ensure the delivery of complex projects safely, are observed. The group takes responsibility for employee and subcontractor welfare, morale and productivity, as well as legal to the correct specifications and quality and within contractual timeframes. Private sector clients are regularly prepared to compliance. Although the sector has seen substantial safety improvements over the last decade, the number of fatalities and negotiate projects with contractors that are consistently able to demonstrate their proficiency, while at the same time adopting serious injuries still remain too high. Driving a culture of zero harm and eliminating fatalities remain a critical priority for construction a collaborative “can do” approach. companies, unions and government. The duress experienced by large, medium and emerging contractors in the current environment has impacted the effective and The construction industry is also a high impact industry and we fully acknowledge the moral and legal responsibility for the timeous execution of various projects and has become a major concern for stakeholders. safeguarding of the environment and the wellbeing of all of those affected by the business. Stakeholders are also becoming more aware of “green” issues, increasing the demand to operate in a sustainable and responsible manner. In addition, the relationship between the government of South Africa and the larger construction industry participants has been strained over recent years due to and a perceived lack of transformation and an unequal allocation of public spending in their favour. IMPLICATIONS FOR VALUE Protecting WBHO’s workforce and the environment in which the group operates is a fundamental human right and a moral IMPLICATIONS FOR VALUE imperative which require continual investment into responsible business practices. A safe and healthy workforce results in Maintaining a positive relationship and reputation with key stakeholders in both the public and private sectors, is critical to ensure an engaged, motivated and productive workforce that mitigates operational stoppages and reduces potential legal liabilities. repeat work and the credibility to tender on large projects. Responsible environmental practices support the long-term availability of the natural resources we utilise in our operations ASSOCIATED RISKS and also reduces potential legal liabilities. • Damage to the WBHO brand ASSOCIATED RISKS • Loss of clientele • Inability to secure repeat business • Project delays • Disqualification from tender lists • Reputational damage • Criminal prosecution • Financial penalties • Disqualification from tendering in certain sectors Strategic response Key stakeholders impacted

SO3 Reputation and relationships Clients Strategic response Key stakeholders impacted SO2 Procurement and execution excellence Government SO5 Safety and environmental management Employees

Suppliers and subcontractors

Communities

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MATERIAL ISSUES AND OPERATING CONTEXT CONTINUED

TRANSFORMATION COMPLIANCE

EMPOWERMENT CREDENTIALS SUPPORT PARTICIPATION IN PUBLIC INFRASTRUCTURE PROJECTS A CHALLENGING REGULATORY AND POLICY ENVIRONMENT When applied effectively and ethically, broad-based transformation is a key tool in addressing historical inequalities within South Across the various operating geographies, there has been many new or amended legislation impacting WBHO, including Africa. WBHO is of the firm belief that transforming the construction sector, and the local economy as a whole, is a necessity. regulations relating to construction industry, company and tax law, labour relations, environmental, health and safety performance, and the delivery of social objectives. With the construction industry being highly regulated, legal and regulatory compliance is a Regrettably, transformation requirements are continuously changing within the tender market. Transformation-driven procurement priority for the board. Compliance with the relevant legislation and regulations in the countries and sectors in which we do business rules by state-owned entities are being inconsistently and sometimes illegally applied and are often not in alignment with current is essential and grants us our licence to operate. legislation or policy.

Nonetheless, WBHO continues to play an active part to ensure that the transformation objectives of WBHO, the sector and IMPLICATIONS FOR VALUE government are achievable. Increasing regulatory measures and continuing uncertainty in the interpretation and application of legal requirements impacts the way we operate, results in greater compliance-related costs and affects the nature of the relationship between business Across the rest of Africa there has been stronger focus on increasing local participation in public spending, particularly in Botswana and governments. and Ghana. In Botswana, certain categories of tenders are restricted to citizen-owned companies only. In addition, the government has set up the Citizen Entrepreneurial Development Agency to provide fledgling citizen-based companies with technical, financial and ASSOCIATED RISKS managerial assistance. Ghana has a local content policy applicable to the mining sector which results in pressure from our traditional • Reputational damage mining clients to incorporate local ownership into our business. In other territories, work permits are only issued to expatriates where • Legal prosecution • Financial losses we are able to demonstrate that equivalent skills are not available in-country. • Deregistration from government/industry bodies IMPLICATIONS FOR VALUE Due to the significant public spending directed toward the construction sector by governments, transformation and localisation remain high on the political agenda. Maintaining appropriate empowerment credentials is crucial to the ability of the company to Strategic response Key stakeholders impacted tender on public infrastructure projects and ensure sustainability within African markets. SO3 Reputation and relationships Government ASSOCIATED RISKS • Lower B-BBEE ratings Localisation and transformation Clients • Inability to tender on public infrastructure projects SO6 • Failure to meet employment equity targets • Sanctions from the Department of Labour Investors • Meeting Voluntary Rebuild Programme (VRP) obligations

Strategic response Key stakeholders impacted

SO6 Localisation and transformation Government

Employees

Communities

28 WBHO Integrated Report 2019 WBHO Integrated Report 2019 29 MATERIAL ISSUES AND OPERATING CONTEXT CONTINUED AXIS APARTMENTS

21 700 m2 11-storey building COMMUNITY UNREST AND BUSINESS FORUMS consisting of 83 apartments and two basements UNREALISTIC JOB DEMANDS BY COMMUNITIES AND BUSINESS FORUMS The South African social landscape is characterised by high levels of unemployment and poverty. WBHO has experienced a significant increase in the number of community-driven unrest events where community leaders have unrealistic expectations in PROJECT VALUE respect of job opportunities for their members. Of concern, is the growing militant nature of these events, causing project delays, in some instances for months, and threating the safety of WBHO employees and contractors. The matter is further exacerbated by individuals and business forums, also known as the “Construction Mafia”, seeking to exploit communities for their own gain. R197 million These conditions have led to many highly skilled construction professionals to pursue career opportunities internationally.

IMPLICATIONS FOR VALUE Project delays impact on the ability of WBHO to successfully complete projects on time. Many clients are also attempting to PROJECT DURATION transfer the responsibility and liability of managing the communities onto contractors, increasing the operational and financial risk to the organisation. The loss of key skills impacts both current and future projects. 19 months ASSOCIATED RISKS • Additional costs, penalties and project delays • Impact on quality, delivery and reputation

Strategic response Key stakeholders impacted

SO6 Localisation and transformation Communities

SO3 Reputation and relationships Clients

Employees

30 WBHO Integrated Report 2019 WBHO Integrated Report 2019 31 UNDERSTANDING WBHO I CREATING VALUE I DELIVERING VALUE I PROTECTING VALUE

ENGAGING AND CREATING VALUE FOR STAKEHOLDERS

APPROACH MAPPING WBHO’S STAKEHOLDERS STAKEHOLDER RELATIONSHIPS WBHO is committed to transparent reporting in accordance with In prioritising its material stakeholders, WBHO applies the The table below provides an overview of WBHO’s material stakeholders, their role in value creation, how the group engages with them, its duty to all stakeholders. In executing its governance role and following criteria: their main concerns and how WBHO has responded to these with a link to the group’s strategic objectives. responsibilities, WBHO adopts a stakeholder-inclusive approach • The degree to which WBHO depends on the relevant stakeholder’s support in achieving its strategic goals Strategic that balances the needs, interests and expectations of material Stakeholders Relationship Engagement processes Main concerns • The extent to which the relevant stakeholder can impact response stakeholders over time. The board is ultimately accountable for performance stakeholder engagement. As such, the group engages regularly Satisfied clients are critical to the • Client perception surveys • Quality of work SO2 • The relative importance of the relevant stakeholder for the ongoing success of the group. We • On-site visits • Capacity to deliver (skills with stakeholders to understand their perceptions of WBHO and group as a whole seek to create and develop strong • Regular meetings and resources) SO3 pinpoint future trends, possible risks, determine material issues relationships with our clients • Media (editorial and advertorial) • Reliability and expertise • The risk exposure for WBHO by not engaging with the Clients SO4 and areas for strategic development. Engagement with relevant stakeholder through honest, clear and regular • Company events • Safety stakeholders is aimed at building mutually beneficial relationships. communication. • Website updates • Depth of senior management SO5 • Integrated reports The financial capital available to the • SENS announcements • Revenue growth SO1 group enables business continuity • Printed and electronic media • Operating margin and growth, including strategic releases • Return on investment SO3 Investors investments. We aim to provide our • Results presentations • Dividends High shareholders and investors with • Integrated reports • Order book returns in excess of 20%, which • Company AGMs • Company sustainability exceed the real growth in the • Face-to-face management • Executive remuneration Financial economy and the construction sessions • Leadership institutions sector, in particular. • Analyst-hosted events • Corporate governance Employees The success of WBHO is • Internal and on-site meetings • Remuneration Clients SO4 Government Suppliers and attributable to its people. The • Union meetings • Career paths and growth group is committed to providing • Newsletters opportunities subcontractors SO5 Investors Employees employees with a safe, industrious • Notice boards and staff memos • Training and skills development and encouraging environment • Training initiatives • Employment equity within which they can thrive and • Awareness campaigns • Safety grow. • Employee forums The ability to deliver quality services • Regular supplier audits • Continuity of work SO2 to clients relies heavily on the quality • On-site visits and meetings • Payment terms Keep satisfied Manage of the services and products • Electronic communications • Safety requirements SO5 Maintain a high level of dialogue and keep Manage very closely and maintain very high level Suppliers received from suppliers and • Service level agreements satisfied of dialogue and sub- subcontractors. As a result, WBHO contractors seeks to develop close working relationships with these stakeholders. Financial institutions support • Regular one-on-one meetings • Operational performance SO1 WBHO’s growth objectives through • Presentations • Debt-to-equity ratios the provision of banking and • Electronic communications • Liquidity Financial guarantee facilities. • Financial and risk management institutions processes WBHO regularly works with public • Tenders • Regulatory compliance

INFLUENCE ON WBHO SO6 Media Communities sectors in different countries on • Industry forums – Safety large-scale infrastructural • One-on-one meetings – Environmental SO5 Government developments projects. • Presentations – Competition Government-appointed regulators • Skills development plans – Tax collections SO3 are largely responsible for • B-BBEE scorecard submissions – Transformation developing and enforcing policies • Construction Industry Charter – Employment equity and regulations for the construction Council • Job creation industry. • Skills development Monitor Keep informed • Enterprise development Aim to increase their level of interest Manage closely and maintain regular dialogue WBHO seeks to have a positive • Meetings and consultations • Employment opportunities SO6 impact on the communities within • Community presentations • Environmental impact of our which it operate by employing and • Site visits activities Communities training local people where possible • Environmental impact • Local SED initiatives and constructing local amenities as assessments Low High part of its socio-economic • Awareness campaigns development (SED) commitments. • Sponsorships INTEREST IN WBHO • Donations

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ENGAGING AND CREATING VALUE FOR STAKEHOLDERS CONTINUED

SIGNIFICANT STAKEHOLDER CONCERNS COMMUNICATED DURING THE YEAR RESPONSE In the course of the financial year, engagement with stakeholders revealed two significant areas of concern. The issues identified are The group addressed its various stakeholder concerns throughout the year via interim and final results presentations, industry-wide discussed below alongside how the organisation responded to these. investor engagements, one-on-one interactions where necessary and specifically in respect of employees, through various internal forums and company newsletters. STAKEHOLDERS HAVE SOUGHT A CLEARER UNDERSTANDING OF THE SHORT- TO MEDIUM-TERM IMPACT OF WBHO continues to monitor market developments closely, focusing on those sectors offering value. Recognising that the construction THE FOLLOWING ISSUES ON THE OUTLOOK FOR WBHO cycle is closely linked to economic cycles, the company has implemented a “flexibility and diversification” strategy to mitigate risk and STATE OF THE SOUTH AFRICAN CONSTRUCTION INDUSTRY provide stability of earnings. The construction sector in South Africa has faced significant headwinds over recent years, culminating in the widespread collapse of the industry as a whole over the course of the last two years. The effect has been severe, rippling through the entire supply chain: consulting With regard to Australia, the group highlighted its strategy to limit further growth within the building business and concentrate on selective bidding and project delivery in order to achieve margin enhancement. Management also conveyed their assessment of the engineers; large, medium and emerging main contractors; suppliers and subcontractors; and not least employees, investors and reasons behind, and extent of, the anticipated losses on WRU, the group’s ability to fund these losses and the overall impact on the financiers have all been materially affected. financial position of the group. In addition, the forward-looking bidding strategy of the infrastructure business in the Eastern Region was communicated. SIZEABLE GROWTH IN THE AUSTRALIAN BUSINESS WITHOUT A CORRESPONDING GROWTH IN PROFITABILITY ALONGSIDE UNPRECEDENTED LOSS IN RESPECT OF WESTERN ROADS UPGRADE (WRU) IN FY2019 Stakeholders were also informed that the integration of recently acquired businesses in the UK is progressing well. In FY2019, the group In FY2015, revenue from the Australian business comprised 52% of the group’s total revenue, peaking at 63% in FY2018. Operating highlighted the successful turnaround of the Byrne Group which returned to profitability alongside the Russells businesses performing in margins have fluctuated between 1,7% and -1,5% over the last five years, well below the operating margins generated within the African line with expectations. The potential impact of the Brexit negotiations remains unclear, however, being a smaller player in a large market, operations. In addition, in FY2019 the group reported a consolidated operating loss of AU$33 million in Australia due to significant increasing our market share is achievable should the market constrict slightly. Clients are also looking for contractors with a different provisioning for anticipated losses on the WRU project, not long after various other local industry players had reported material losses in approach and we are being encouraged to fill this space. foreign jurisdictions. COMMUNITY AND BUSINESS FORUM PARTICIPATION IN CONSTRUCTION PROJECTS EXPANSION INTO THE UNITED KINGDOM (UK) High levels of unemployment and poverty in South Africa has resulted in a higher demand for job participation by community members In June 2017 the group acquired a 40% interest in the Byrne Group in the UK for £12 million in order to further diversify its earnings on construction sites. In the past these demands were generally localised within rural areas. In recent times, however, the group has platform following protracted stagnant growth across African markets. These funds were used to recapitalise the business to mitigate the experienced a significant increase in the prevalence of unrest events across the country including the major cities. In addition, government’s impact of two large loss-making on the business’ financial position. In FY2018, losses from the Byrne Group exceeded predictions announcement that 30% of public spending on construction projects is to be subcontracted to the previously disadvantaged has been primarily due to the delayed start of projects impacted by the uncertainty surrounding Brexit. This allowed the group to increase its exploited by business forums, resulting in unrealistic demands on all projects, bringing sites to a standstill. Of concern is the militant nature of many of the unrest events, causing damage to property and impacting the safety of employees and contractors. Inevitably the unrest has interest in the business to 80% in accordance with the terms of the sale agreement. Amidst this uncertainty, the group announced its caused a number of significant project delays. investment of approximately R629 million into the Russells businesses in Manchester. KEY STAKEHOLDER IMPACTED KEY STAKEHOLDER IMPACTED

Rural communities often live in extreme poverty and approach site management with the genuine intention of With 60% of shareholder value eroded within the construction sector over the last five years and the prevalence improving the lives of members. Regrettably, their understanding of what work is available is unrealistic and these of numerous high profile corporate failures, investors were keen to obtain management’s view on the prospects expectations need to be managed. of the local industry and WBHO’s African operations in particular. Communities Investors In respect of Australia, given the inconsistent earnings delivered recently, investors have expressed concern as to whether the returns achievable from the region are commensurate with the potential risks arising from a low-margin Working in a threatening environment is both stressful and unpleasant. Employees have rightly expressed and highly-contractual market. concern over their safety. In most instances, disruptions do not turn violent, however, following the widespread burning and destruction of property during unrest in Saldanha this year, the group received a number of The implications of the outcome of Brexit on fixed investment within the UK economy and the potential knock-on Employees resignations from promising employees. effects into the construction sector remain unknown. Investors were curious to understand the rationale behind the timing and extent of the group’s entry into UK markets.

Disruptions result in lengthy project delays and significant additional costs for clients. While clients proactively Financial institutions have suffered significant losses as a consequence of their ongoing support of local engage with the contractor and communities to resolve these issues, WBHO has noticed an increased trend in clients seeking to contractually transfer the management of the risk to the contractor. contractors and the ultimate failure of certain businesses. As a result, appetite for any exposure to the sector has Clients largely diminished. This, together with the untimely losses experienced by the group in Australia this year, required Financial clarity from management as to the potential impact of local market conditions and WRU losses on the financial institutions position of the group. RESPONSE WBHO recognises the economic and social challenges experienced by many South Africans. The group remains committed to employing Employees in South Africa are cognisant of conditions within the local industry and are suitably concerned about and training resources from local communities. Furthermore, the company is also actively involved in the construction of local amenities, job security and personal growth prospects. such as clinics and schools, as part of its socio-economic development (SED) commitments. For more on WBHO SED activities, refer to the separately published ESG Report. Employees WBHO has developed a set of protocols to manage engagement with communities, ensure employee safety and minimise the occurrence of disruptions. Site management proactively engages with local communities prior to commencing work often appointing community liaison officers to maintain regular and productive dialogue with community and business forum leaders. Awareness training and support has been made available to operational teams when deal with the communities. On-site security measures have also been strengthened to safeguard property, employees and contractors.

Bidding teams are now engaging with clients at the time of tendering in order to identify the possibility of disruptions and ensure an appropriate allocation of risk.

34 WBHO Integrated Report 2019 WBHO Integrated Report 2019 35 ENGAGING AND CREATING VALUE FOR STAKEHOLDERS CONTINUED CAPITEC BANK VALUE-ADDED STATEMENT As part of a greater socio-economic ecosystem, we recognise that we are dependent on robust relationships with key stakeholders. A new 54 712m2 head ofﬁ ce Value-added indicates the wealth WBHO creates through its activities to the following stakeholders: shareholders, employees, debt for Capitec Bank together with providers, suppliers and the government. a parkade

PROJECT VALUE Rm 2019 2018 CLIENTS R554 million Revenue* 45 888 39 218 WEALTH SUPPLIERS PROJECT DURATION Cost of materials and services* (38 457) (32 243) CREATED 7 431 6 975 EMPLOYEES 26 months Payroll costs 3 669 3 380 Share-based payment expense 48 64

INVESTORS Dividends paid to shareholders 184 275

FINANCIAL INSTITUTIONS Interest and finance charges 15 8 WEALTH Lease payments 8 7 DISTRIBUTED GOVERNMENT Taxes and duties 2 920 2 456 COMMUNITIES Corporate social investment 5 6

6 849 6 196 WBHO Attributable earnings (less dividends paid) 299 539 WEALTH Depreciation 283 240

582 779 RETAINED

* Including value-added tax and sales tax where applicable.

Wealth distribution (%) Wealth distribution (%) Wealth distribution (%)

8 10 3 5

2019 50 2018 30 55 39

Employees Government Employees Government Providers of capital Retained Employees for growth ProvidersProviders of capital of capital Retained for growth Government Retained for growth

36 WBHO Integrated Report 2019 WBHO Integrated Report 2019 37 UNDERSTANDING WBHO I CREATING VALUE I DELIVERING VALUE I PROTECTING VALUE

STRATEGIC OBJECTIVES

Guided by WBHO’s vision, the strategic objectives represent the key attributes necessary for a successful construction company and are linked to underlying strategic initiatives and specific metrics/indicators where SO1 FLEXIBILITY AND DIVERSIFICATION applicable. Revenue per segment (Rbn) Flexibility and diversification are fundamental for success in the ever-changing market conditions the construction industry continuously confronts. WBHO’s strategy needs to be fluid and adaptable, allowing the group to proactively 2019 align procurement activities with those markets offering the VISION best value. To be the leading construction company wherever WBHO operates, always striving to be “a pleasure to do business Maintaining a low fixed-cost base in higher-risk territories 2018 allows WBHO the flexibility to manoeuvre between them with” by delivering quality solutions in a professional and collaborative manner, every time. WBHO is adaptable enough with relative ease in response to geographical and market fluctuations. to “go where the work is”, even when conditions are challenging, without compromising its standards. 2017 The group navigates competitive market conditions by being flexible and hard-working, focusing on nurturing strong Growth objectives are facilitated through the implementation of a long-term diversification strategy 0 5 10 15 20 25 client relationships by being approachable and dependable and stand firmly behind the motto of “Rely on our ability”. across different geographies and industry sectors and at multiple levels of the construction value chain. This, in turn Building and civil engineering Roads and earthworks helps mitigate risk and enhances shareholder value by Australia Construction materials providing stability in earnings. United Kingdom Exposure levels to individual sectors and geographies are carefully managed over the short to medium term. Revenue per geography (Rbn)

STRATEGIC INITIATIVES Flexibility and 2019 diversification • Geographic diversification and new markets • Segment diversification and new markets • Strategic project selection 2018 • Right-sizing to market demand • Specialised project services and innovation SO1 2017 Localisation Procurement and and KEY PERFORMANCE INDICATORS 0 5 10 15 20 25 transformation execution • Revenue growth SO6 SO2 South Africa Rest of Africa excellence • Revenue by sector Australia United Kingdom • Revenue by geography • Order book (by segment and geography) STRATEGIC Order book per segment (Rbn) OBJECTIVES OBJECTIVES REFLECTING ON FY2019 • Acquisition of a 60% controlling interest in Russells 2019 SO5 SO3 Limited and a 31,7% interest in Russell Homes Limited – Entrenches recent geographical expansion into the Safety and Reputation and United Kingdom 2018 relationships – Creates diversification within the UK construction environmental SO4 management market • Successful adaption of existing contracting models to 2017 compete against mid-tier contractors with a lower fixed-cost base 0 7 14 21 28 35 Capacity and talent • Penetration of industrial/warehousing sectors in KwaZulu-Natal and the Eastern Cape Building and civil engineering Roads and earthworks management • Penetration of social housing market in the Eastern Cape Australia United Kingdom • Increased private sector procurement within Roads and earthworks division • Shift in focus toward eastern and southern African markets • Targeting of new clients within an acceptable risk framework

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STRATEGIC OBJECTIVES CONTINUED

SO2 PROCUREMENT AND EXECUTION EXCELLENCE SO3 REPUTATION AND RELATIONSHIPS

Operating margin (%) There are simultaneous, continuous and interlinked processes A noticeable presence in the marketplace alongside a proven within the business. The standard and quality of submitted 5 track record and a reputation for reliability, consistency and bids directly impacts on operational performance. WBHO value are crucial to establishing and maintaining close client seeks to offer a fair price at acceptable levels of risk for all 4 Target margin range 3 to 5% relationships and our ability to bid on major projects. parties involved. 3 Our reputation has developed by delivering projects to the During the procurement phase, the group targets those highest standards and providing an all-inclusive “quality Diamond Arrow projects that will best serve WBHO’s strategic objectives and 2 experience”. Our commitment to “execution excellence” is 2019 create value for stakeholders. During the execution or achieved by embedding our culture throughout our business National Survey on operational phase that follows, brand equity and the reputation 1 in doing things “The WBHO Way”. Construction Companies of the group is cultivated and maintained. “The WBHO Way” embodies a set of shared values, including 0 WBHO Construction Confidence and credibility is generated when clients 2015 2016 2017 2018 2019 reliability, delivery and a focus on building relationships, which experience consistently high-quality work which, in turn, together underpin our motto of “being a pleasure to do (Pty) Ltd enhances WBHO’s ability to secure future projects. Actual Target business with”. Outstanding – 1st overall

Rated by a random, national sample of 190 respondents comprising of 50 architects, 70 consulting engineers, 20 property developers and 50 quantity surveyors ISO 9001 audit coverage (%) STRATEGIC INITIATIVES STRATEGIC INITIATIVES • Client and project evaluation • Proactive stakeholder engagement • Tender evaluation and governance South Africa • Ethics programmes • Selective bidding and rest • Regulatory compliance programme of Africa • Contract payment terms and hedging • Corporate governance excellence Customer quality perception rating (%) • Performance evaluation • Entrenching culture among new employees • Risk management Australia 100 • Quality audits • Quality training 95 KEY PERFORMANCE INDICATORS United • Client perception survey ratings 90 Kingdom • Percentage of negotiated projects KEY PERFORMANCE INDICATORS • Percentage of repeat work from clients 85 • Operating margin 0 20 40 60 80 100 • ISO 9001: Quality management system (QMS) 80 – Coverage and audit outcomes 2019 2018 2017 REFLECTING ON FY2019 – Training 75 – Cost of rework and waste • Recognised as a standout contractor amongst industry peers in FY2019. Awarded the PMR Africa 2019 Diamond • Actual versus tender analysis 2011 2014 2009 2010 2012 2013 2015 2016 2017 2018 2019 • Occurrence of loss-making projects OF COMPLETED Arrow Award for an unprecedented 20 consecutive years • WBHO, alongside its other group brands (Probuild, Byrne Actual Target 55% PROJECTS IMPROVED Brothers, and Russells Construction) is recognised as the ON TENDER MARGIN preferred contractor on many engagements, built on a REFLECTING ON FY2019 (2018: 65%) strong culture of consistent delivery, professionalism • AU$57 million provision for future losses recognised on and respect WRU project in Australia due to misinterpretation of bid • Building new client relationships designs LOSS PROVIDED FOR • Client quality perception maintained at 88% EMPLOYEES COMPLETED – In-depth due diligence of the bid undertaken AU$57m ON WRU PROJECT • Responsive senior management 143 COMPETITION LAW TRAINING – Risk profile of infrastructure procurement strategy in the IN AUSTRALIA • WBHO continues to engage with government in respect Eastern region focussed on construction only projects of both the industry’s and goverment’s transformation – Full estimated project loss recognised upfront. objectives Key tender processes under review • Proactive and transparent community engagement to EMPLOYEES COMPLETED • Purposeful restriction of growth in Australian building support localised job creation and upliftment 84 ANTI-BRIBERY AND business CORRUPTION TRAINING – To stabilise inconsistent earnings history – Improved margin performance in FY2019 9001:2015 CERTIFIED • Group margin of 1,4% (FY2018: 3,0%) below lower target range of 3,0%, mainly due to WRU project • Successful implementation of turnaround strategy for the Byrne Group sees a return to profitability in FY2019 100% QMS COVERAGE • No material underperforming contracts in South Africa

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STRATEGIC OBJECTIVES CONTINUED

SO4 CAPACITY AND TALENT MANAGEMENT SO5 SAFETY AND ENVIRONMENTAL MANAGEMENT

Lost-time injury frequency rate (LTIFR): Group People management is a key focus area within the group. As a contractor with an international footprint, operating Effective employee development earns staff loyalty and their REFLECTING ON FY2019 across Africa, Australia and the United Kingdom, it is essential 1,5 commitment to “The WBHO Way”, as well as attaining the • Internal appointments of new Chairman and CEO that WBHO holds itself to the very highest health and safety organisation’s strategic goals of “procurement and execution announced standards. Protecting the welfare of employees and • Increase in total headcount to 12 121 (FY2018: 11 018) excellence” and “transformation”. subcontractors results in healthy morale and undisrupted 1,0 following consolidation of UK operations productivity. A proven safety record is imperative for the Bursary schemes, inductions, on- and off-site training • Worrying trend of decrease in industry-wide training and procurement of work within certain key markets, particularly interventions and management development programmes increased emigration of construction professionals mining infrastructure and the public sector. help equip staff with the necessary expertise at each of the key • Significant investment in training in the year. R91,2 million 0,5 phases of their career development, while also attending to the (FY2018: R85,7 million) invested in training As a moral corporate citizen, the group has an ethical and legal duty to minimise and reduce its impact on the skills shortages experienced in the construction industry. • Core skilled and dedicated management teams retained environment in the areas in which it operate. Compliance with • Sustained ability to attract top talent and grow next 0 Right-sizing teams is a continuous process in order to match environmental regulations and legislation strengthens WBHO’s generation of leaders by remaining employer of choice within 2015 2016 2017 2018 2019 demand with economic cycles. Effective recruitment reputation and avoids legal and financial consequences. our markets processes and solid working relationships with the LTIFR RCR representative unions are essential in achieving this outcome. • 634 retrenchments in the year (FY2018: 333) – well below current industry norms The overlapping nature of active and new projects means • Following a number of years of relative stability in employee STRATEGIC INITIATIVES Carbon emissions (tonnes CO2e) that they seldom begin and end in a linear manner. The relations and industrial action, the group experienced a • Implementation of global industry best practice number of staff required at the various stages of projects significant increase in the number of “person days lost” • Accident and near-miss reporting differs significantly. The process of dealing with these lags or in South Africa in the year, mainly attributed to illegal work • Effective and transparent incident management overlaps is called “managing the gap”. It is a constant stoppages and an increase in community and business • Visible Field Leadership (VFL) initiative 2019 process to ensure that the right skills and manpower are forum disruptions • Medical fitness programme available at the right time. • Training and awareness programmes • Safety alert initiative 2018 • Carbon disclosure project Headcount by region • Water usage management STRATEGIC INITIATIVES • Waste management initiatives • Succession planning South • Green Building accreditation 2017 • Training and skills development initiatives including: Africa – Learnerships 0 20 000 40 000 60 000 – Bursaries Rest of KEY PERFORMANCE INDICATORS – Mentoring Africa • OHSAS 18001: Safety management system (SMS) • Management development programmes – Fatalities • Targeted recruitment Australia – LTIFR and RCR • Optimal resource allocation – Alcohol and drug test results FATALITIES • Leadership reviews 3 United – Coverage and audit outcomes (FY2018: 3) • Salary benchmarking Kingdom • ISO 14001: Environmental management system (EMS) • Ethical labour practices – Environmental incidents 0 2 000 4 000 6 000 8 000 – Carbon emissions – Coverage and audit outcomes 2019 2018 2017 KEY PERFORMANCE INDICATORS • Employees by region Number of employees trained 14001:2015 CERTIFIED • New hires REFLECTING ON FY2019 • Retrenchments • ISO 18001 and 14001 certification maintained across all • Employee turnover (%) 2019 regions • Training spend • Improved group LTIFR of 0,69 (FY2018: 0,91) • Training hours (average) • Record low LTIFR of 0,41 (FY2018: 0,91) achieved within • Number of employees trained 18001:2015 CERTIFIED 2018 the Africa business. • Engineering Council of South Africa registration programme • Three fatalities in South Africa (FY2018: 3) • Number of learnerships • Ongoing awareness interventions – 1 378 employees • Bursary spend (FY2018: 1 639) from the Africa operations participated in EMS AND SMS • Number of students receiving bursaries 2017 health and safety training 100% COVERAGE • Zero reportable incidents recorded nor fines levied for non-compliance with environmental laws and regulations. 0 500 1 000 1 500 2 000 2 500 3 000 3 500 For more on our human capital and skills development practices, see WBHO’s separately published 2019 ESG Report For more on our safety and environmental management practices, see WBHO’s separately published 2019 ESG Report

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STRATEGIC OBJECTIVES CONTINUED AYKON LONDON ONE

A mixed-use development LOCALISATION AND TRANSFORMATION SO6 consisting of a 51-storey and a 24-storey tower linked with Demographics of South African employees a 5-storey bridge at level 8 A diversified workforce, the development of skills, succession planning and the transfer of economic benefits to previously disadvantaged individuals and local inhabitants, as well as cultivating a representative management structure are 2019 PROJECT VALUE fundamental to WBHO’s long-term sustainability.

2018 £37 million STRATEGIC INITIATIVES • Transformation strategy and implementation programme • Localisation practices PROJECT DURATION 2017 • Employment equity plan • Construction Industry Charter Council representation • Communication and negotiations with the Department of 0 1 000 2 000 3 000 4 000 5 000 6 000 26 months Labour African Coloured Indian White

KEY PERFORMANCE INDICATORS Localisation in countries with 200 or more employees (%) • B-BBEE scorecard rating (by division) • Workforce by gender, location and contract type • Procurement spend • Employment equity targets Botswana

Ghana REFLECTING ON FY2019 • WBHO proudly retains Level 1 status under new Codes • Recognised as second most empowered company on Mozambique JSE in 2018 • 88% black representation in South Africa Zambia • R4,5 billion black procurement spend (FY2018: R3,7 billion) • R53,4 million black training spend (FY2018: R50,3 million) 0 20 40 60 80 100 • Development of long-term mutually beneficial relationships with emerging contractors through joint 2019 2018 2017 ventures and enterprise development programme • Ongoing support of VRP initiative in a difficult trading environment: – One VRP partner replaced in the year – Growth objectives for VRP partners remain attainable – R63 million contributed to the Tirisano Trust over three years • 93% (FY2018: 90%) of the workforce in African countries, excluding South Africa, represented by citizens of the host country • Joint venture agreements in place with 100% citizen-owned companies in Botswana

For more on our tranformation journey, see WBHO’s separately published 2019 ESG Report

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RISK MANAGEMENT

STRATEGIC RISK OUR APPROACH The risks and trends incorporated within the operational risk assessments inform the Risk committee’s assessment of the risk profile of WBHO realises that risk management is a fundamental management practice that is imperative to good the group in the context of delivering its strategic objectives. The macro environment, together with the corporate, regulatory and legal compliance risk are also assessed. These risks are presented to the board, which then decides on the overall strategy of the group. corporate governance. While risk cannot be eliminated from business activities, the risk management process provides a methodised way to identify, prioritise and manage risk.

By entrenching risk management within group business processes in a specific and practical manner, a formal means for managing the risks associated with the operating environment is established.

The board is assisted by the Risk committee and the internal audit function when considering and ASSURANCE Assurance is an invaluable business tool enabling us Line 1 reporting on strategic, operational and project risks. The board is ultimately responsible for risk governance to identify potential risks, understand our exposures, Line management and determines the level of risk tolerance within the group and reviews its risk profile biannually. and ensure that the right checks and balances are in and internal controls place to mitigate these risks.

The overarching framework, incorporating the three RISK MANAGEMENT PROCESS lines of defence illustrated in the following COMBINED infographic, was presented to the Audit committee during the year. ASSURANCE Line 3 Line 2 Independent, objective Risk management and • Operational risk committee reviews existing strategic risks, identifies internal and external compliance functions assurance providers STRATEGIC new risks and develops the strategic risk profile RISK • Operational risk committee tables the strategic risk profile to Evaluated by the the Risk committee for final consideration and approval • Risk committee reports the risk profile to the board Operational risk The board, through the Audit committee and supported by the Risk committee, are responsible for ensuring that the combined assurance committee biannually model is applied to provide a coordinated approach for all assurance activities, in order to appropriately address all the significant risks facing the organisation. OPERATIONAL RISK Divisional risk assessments undertaken • Reported biannually to the Operational risk In developing the combined assurance plan, a comprehensive risk assessment was made of the various operational and financial areas of biannually and reported to the committee the business, categorising each of these into areas requiring low, medium or high levels of assurance, based on their inherent risk profiles. Operational risk committee Those areas identified as requiring medium and high levels of assurance are then incorporated into the audit plans of the various independent assurance providers of the group, namely the environmental, safety and internal audit teams. PROCUREMENT AND PROJECT RISK • Review risks on all projects quarterly and at Risk assessments by site management key stages of the project life cycle The following table lists the content and processes on which WBHO obtains assurance, together with the providers of this assurance. undertaken quarterly on targeted projects • All high risks identified are reported quarterly at meetings of the divisional boards Content and functions Assurance provider Level of assurance Outcome

Annual financial statements BDO South Africa Incorporated Level 2 Unqualified audit opinion

B-BBEE rating EmpowerLogic (Pty) Ltd Level 3 Level 1 certified RISK MANAGEMENT METHODOLOGY Environmental management BSI Levels 2 and 3 ISO 14001 compliant PROCUREMENT AND PROJECT RISK Occupational health and safety BSI Levels 2 and 3 OHSAS 18001 compliant Potential projects are assessed prior to tender submission and defined authority levels are in place for how bids are escalated through the management management structures of the group for approval. As with active projects, tenders are evaluated against time and cost, together with Quality management TUV Reinland Levels 2 and 3 ISO 9001 compliant available resources, client assessments, payment risk, margins, country risk and contractual terms that are considered to be unusual. Internal control environment Deloitte South Africa Levels 1 and 3 Reliance on internal controls Major projects are assessed every three months as well as at crucial lifecycle stages of the project. These evaluations take the form of risk and opportunity schedules that focus on the key risks of time, cost, resources, contractual claims and stakeholder relationships. The RISK TOLERANCE AND RISK APPETITE outcome of these evaluations are tabled and discussed at monthly management meetings. These schedules are also captured into the risk WBHO understands and proactively manage risks within set risk appetite and risk tolerance levels, in order to optimise business returns. database and the divisional dashboards identify trends and common themes across all the group’s projects. Risk appetite is defined as the amount and type of risk that the organisation is willing to take in order to meet its strategic objectives. OPERATIONAL RISK Operational risks are evaluated at a divisional or business unit level. Giving due consideration to the individual operating environments, risk assessments relating to current market dynamics, skills shortages, capacity, talent management and stakeholder relationships (clients, professionals, labour, suppliers and communities) are made. These risks are presented and discussed at a senior management level and appropriate risk mitigation strategies are developed and refined. Once entered into the risk database, these risks are escalated to the Operational risk committee and, ultimately, the Risk committee.

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RISK MANAGEMENT CONTINUED

Strategic ENTERPRISE RISK MANAGEMENT Risk and impact on value if not managed Key response or mitigation response The enterprise risk management process records and aggregates the risks and opportunities identified at the project and operational levels of the business, which then informs the assessment of certain strategic risks. Aggregate values at risk are determined both at Procurement and execution risk (controllable) • Structured planning and resource utilisation SO2 Procurement and execution risk are closely linked to changes in market processes business unit level and ultimately the group. Project risks have been standardised to cover numerous individual site circumstances which 4 dynamics, skills shortages and talent management. • Formal tender policy including a formal tender allows for consistent reporting and aggregation of risk. In the existing competitive environment, margins are eroded requiring approval authority matrix is in place an increased focus on project execution. The prevalence of these risks • Due diligence investigations undertaken on is determined with reference to the total residual value at risk across all critical suppliers and subcontractors IMPACT projects and trend analyses obtained from the risk database. • De-risking of certain bidding strategies in Australia Catastrophic The group widely utilises the services of suppliers and subcontractors • Stringent monitoring of project performance on projects. Non-performance by these partners has serious including thorough forecasting of completion consequences for projects, which include financial, operational and costs at critical stages of the project lifecycle reputational implications. • Implementation of globally accredited quality 3 Major 1 The challenging construction environment in South Africa and the rest of best practices Africa together with the loss-making projects in Australia and the unknown impact of Brexit in the UK have resulted in this risk remaining 4 6 8 7 possible and moderate. Moderate 2 5 Major safety, health or environmental incident (controllable) • Implementation of globally accredited, safety SO5 5 The construction industry is seen as a high-impact and somewhat and environmental best practices across all hazardous sector. Any major incidents that occur have reputational operations Minor implications for the group, which affect its ability to procure work. • Top-down responsibility and accountability to ensure culture is embedded at all levels of 2 7 The group has implemented internationally recognised best practice systems across all operations, however, the risk of a serious safety or operations environmental incident remains possible with a moderate impact. • Proactive information and knowledge sharing Insignificant • Ongoing prevention initiatives • Regular training interventions Highly unlikely Unlikely Possible Likely Almost certain Non-compliance to laws and regulations (controllable) • Frequent review of regulatory and legal matrix SO3 LIKELIHOOD 6 The group is subject to numerous legislative and regulatory together with monitoring of non-compliance requirements across various geographies. Non-compliance with these • Updates and communication of changes to requirements carries significant reputational risk, the potential for fines Code of Conduct and group policies as and penalties and the possible loss of the necessary licences or necessary accreditations needed to procure work. Strategic The group monitors compliance with existing and new regulations and Risk and impact on value if not managed Key response or mitigation response legislation through its regulatory risk matrix. Due to the many inherent variables, the risk remains possible and moderate. Country risk and changing market dynamics (uncontrollable) • Structured risk assessment framework SO1 The group conducts business across numerous sectors and in various implemented to adapt operational procedure in 1 Community unrest (uncontrollable) • Formal protocols developed on how to: SO6 geographical locations. Various macro-economic factors, including line with identified risk Poor service delivery and high levels of unemployment significantly economic cycles, political environments, government policy, and • Ongoing review of market intelligence in 7 – Engage with communities and business affect the quality of people’s lives within township and rural forums prior to construction currency volatility impact the markets in which the group operates. countries with political conflict communities. Community members are desperate for work and this – Manage relationships through the A material deterioration in one or more of these countries or markets • Broad diversification across core often results in unrealistic expectations of employment opportunities. In construction phase could have a severe impact on the size and nature of the group. competencies and geographical expansion built-up areas various business forums have exploited these needs for – Respond to disruptions and threats of • Flexible and responsive management their own gain resulting in on-site disruptions. The local political and economic climate together with the unknown • Strong logistical capabilities in more remote violence impact Brexit may have on the United Kingdom has resulted in this African regions There has been a significant increase in the prevalence of these • Appointment of community liaison officers risk remaining and . incidents with the result that the likelihood of this risk remains almost likely major • Increase in site security measures certain and the impact thereof has increased from minor to moderate. Industrial action (uncontrollable) • Open and transparent dialogue with SO6 2 The South African and Australian labour markets are heavily unionised employees and their representatives Transformation and localisation (partially controllable) • Strategies developed and implemented SO3 and unions wield significant influence. Regular industrial action can • Ongoing, and regular engagement with SO3 8 Transformation within the construction sector remains high on the to meet all elements of the scorecard occur. Industrial action impacts on-site productivity, delivery and major unions government’s political agenda. State-owned entities (SOEs) often • Operational focus on elements within SO4 financial performance. • Negotiation of multi-year wage agreements impose additional empowerment requirements to those contained their control In South Africa, a significant increase in man days lost from 6 331 where possible within the PFMA, in order to prioritise the allocation of work to • Regular monitoring and reporting of SO6 days in FY2018 to 22 379 days this resulted in the risk increasing to emerging contractors. Onerous penalties have also been introduced performance against targets at management possible and moderate. Community unrest disruptions (see Risk 8 for companies that do not comply with their employment equity plans. meetings and Transformation Exco above) are also included in this figure. In other African countries as well as Australia, localisation practices • Retention strategy and management are becoming more prevalent. These include limitations on work development programme for promising Contracting with unreliable clients (controllable) • Robust due diligence processes in place SO2 permits for expatriates and minimum targets for local employment. individuals of colour in place 3 Due to the value and size of contracts, failure by clients to meeting to ensure clients are properly assessed prior While the group retained its Level 1 B-BBEE status in South Africa this their payment obligations can impact on the group’s cash flow, margin to engagement year, government’s policy on transformation within the sector remains slippage and delays in project execution. • Stringent negotiation of payment terms unclear and this risk remains possible and moderate. The impact of the economic environment on existing clients in target and guarantees markets across Africa together with seeking new clients to sustain • Requirement for payment guarantees on activity levels has resulted in this risk remaining possible and major. majority of projects Risk unchanged Risk increased For further information on how these risks affect our material issues see pages 18 to 31 of this report.

48 WBHO Integrated Report 2019 WBHO Integrated Report 2019 49 WEST SIDE PLACE

Probuild’s largest residential development to date consisting of two towers and the tallest hotel in the southern hemisphere

PROJECT VALUE AU$691 million

PROJECT DURATION 45 months

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MESSAGE FROM THE DELIVERING CHIEF VALUE EXECUTIVE

53 Message from the Chief Executive Officer OFFICER 58 Operational reports 76 Order book and outlook 82 Message from the Chief Financial Officer LOUWTJIE NEL

WBHO delivered a mixed performance this year. Particularly pleasing was the successful turnaround of the Byrne Group in the United Kingdom (UK), a solid performance from our recent acquisition of Russells Limited and our ability to sustain activity levels across Africa in the context of what continues to be one of the toughest markets experienced for many years. Sadly, however, these commendable performances were overshadowed by the sizeable losses provided for in Australia.

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MESSAGE FROM THE CHIEF EXECUTIVE OFFICER CONTINUED

Key to delivering stable results over time throughout fluctuating achievement and testimony to the depth and quality of the Aside from the isolated events surrounding the WRU project, TRANSFORMATION AND EMPLOYMENT markets, is our strategy of flexibility and diversification coupled with experience of our people. The Building and civil engineering, the successful delivery of projects has clearly underpinned the EQUITY procurement and execution excellence. Our capability to pursue Roads and earthworks as well as the Construction materials strong operating performance of the group this year, yet goes Our “localisation and transformation” objectives are key issues opportunities across numerous sectors and geographies mitigates divisions all managed to maintain revenue levels, albeit at slightly further in entrenching the strong relationships we have with our across all of the geographies in which we operate. The construction risk and volatility. In delivering our strategy we “go where the work lower margins than previously. A noteworthy achievement is the clients, their professional teams, as well as subcontractors and industry in South Africa has been at the forefront of leading the is” and keep our resources agile and accessible, deploying them to successful shift towards a greater number of private clients by the suppliers. This was again recognised by WBHO winning the PMR country’s transformation for many years. I am delighted to report maximum effect geographically and between divisions. Being Roads and earthworks division in order to sustain their volume of Africa Diamond Arrow Award in South Africa for the top that two construction companies, including WBHO, listed on the adaptable is our strength, and thus we are able to preserve the work in the absence of public sector spending. construction company for the 19th time in the past 20 years. JSE were recognised as the two most transformed entities on the revenue and profitability that sustains the group. This prestigious award measures the satisfaction our clients exchange in 2018. This is a remarkable achievement and Positive market sentiment in Australia continues unabated, experience through the work and projects we execute for them, recognises the efforts made by the industry as a whole. Internally, with the economy recording its tenth consecutive year of and gives them the confidence that they truly can “rely on our OPERATING CONTEXT AND PERFORMANCE economic growth in excess of 2% per annum. Construction we recently maintained our Level 1 B-BBEE status. The South African economy remains under severe pressure. ability”. In Australia, Probuild has won various national and activities also remained buoyant, driven mainly by a shift from Political infighting, weak business confidence, increased levels regional awards, key among which included the Eastland We also take pride in developing the local communities in the residential building activity toward activity in the hotel, office and of unemployment, high levels of protest action and dismay at the Shopping Centre in Victoria, being recognised by Prix Versailles areas in which we operate, and strive to limit the number of retail sectors, particularly large-scale mixed-use developments. extent of state capture revealed at the Zondo Commission of – The World Architecture and Design, as one of the “Top 14 Best expatriates working in other countries by employing and training Public infrastructure spending as well as construction activity Inquiry all lent themselves to a rather sombre mood felt by all Shopping Centre mall exteriors in South Asia and the Pacific”. the local workforce where we have a permanent presence. in the education sector is also supporting growth. Probuild, our South Africans. Only the election of President Cyril Ramaphosa Tier 1 building business in Australia, has grown significantly by Our Voluntary Rebuild Programme (VRP), now in its third year, offered some measure of optimism over the year. Within the CAPACITY AND TALENT MANAGEMENT almost 40% over the last five years. In the current year we is progressing well and we have undertaken a number of construction environment more large and medium-sized Managing the size and mix of teams, both through the purposefully adopted a more conservative approach to pursuing joint ventures with our partners in support of the VRP objectives. contractors were seen entering business rescue or facing reallocation of existing resources and employing further staff, new opportunities in order to focus on project execution and financial difficulties. Lower levels of private investment together are necessary to meet project demands. This year, our headcount profitability. This is reflected in the slightly lower revenue with reduced government spending (now at an all-time low within increased by 1 103 to 12 021, mainly driven by the first-time SAFETY AND ENVIRONMENTAL produced and an improved operating margin. the South African market) limited any potential for real growth. inclusion of 1 127 employees from our UK businesses. Across MANAGEMENT In order to maintain our workload these conditions required us to Unfortunately, the overall Australian result was negatively Africa, while retrenchments were necessary within certain It is essential that WBHO holds itself to the very highest safety bid upon smaller value tenders, often competing against mid-tier impacted by the recognition of a material provision in respect of divisions, the larger Roads and earthworks divisions in South standards in order to protect the welfare of our employees and construction firms carrying a lower fixed-cost base. Both our anticipated future losses on the Western Roads Upgrade (WRU) Africa were recruiting through the year. With the number of subcontractors. This not only results in a safe workplace, but Building and Roads and earthworks teams have adapted project. The effect of this provision negated otherwise solid construction companies ceasing to trade in recent years, one also generates healthy morale and undisrupted productivity. admirably to remain competitive without compromising on delivery results from both Probuild and the remainder of the infrastructure would expect to have found an abundance of skills available In our business, a proven safety record is also imperative for the and quality thus demonstrating their flexibility. Our strong business. The size of the loss recognised is unprecedented, within the marketplace. This has not been the case and is procurement of work within some of our key markets, such as reputation for execution excellence alongside our financial strength not only for the Australian business but for the entire WBHO evidence of a significant loss of highly skilled personnel to mining and the public sector. assisted us in being the preferred contractor for many clients in group, and contributed to a significant decline in the group’s emigration. When coupled with a general decline in the training an environment where effective delivery has been a major operating profit. Occasional loss-making projects form part of current and future construction professionals across the The group achieved a lost-time injury frequency rate (LTIFR) of concern for them. of any construction company, and the ability to minimise and industry, I’m concerned that the lack of investment will create a 0,69 per million man hours (FY2018: 0,90) in the year. Not only withstand the impact of these when they happen, sets strong significant skills shortage in the future and be a major constraint did we achieve a new record low LTIFR of 0,41 (FY2018: 0,90) for On the rest of the continent, the overall economic recovery construction companies apart. Although unpleasant, the well once economic conditions improve. the Africa business, but also substantially improved our safety in sub-Saharan Africa continues, however, prospects in our diversified business and strength of the balance sheet enabled performance in Australia. The improvement is attributable to a targeted geographies and sectors can vary significantly. Our continued success has allowed us to maintain our training us to absorb the event without impacting the long-term number of strategic Safety First initiatives alongside the The impact of international markets on the commodity cycle spend thereby ensuring we have the right technical skills and sustainability of the group. continued benefits achieved through our visible leadership has resulted in fluctuating levels of demand for resources, manpower available to deliver on projects. As part of WBHO’s programme. As part of the programme, scheduled visits are which continues to affect our operations servicing the mining The main reason behind the loss was due to the misinterpretation policy of developing skills from within, we have developed various conducted by members of senior site management not infrastructure markets in South Africa and the rest of Africa. of certain technical specifications within the contract bid design, programmes to support the development of employees in fields specifically involved on the project who evaluate sites from a Locally, we have seen increased spending from the coal miners resulting in an underestimation of the physical construction works critical to the long-term sustainability of the business. Key amongst safety perspective, giving constructive feedback to the project while our divisions operating in Mozambique and West Africa required. After lengthy delays in obtaining the necessary design these are the Management Development Programme and team and sharing safety practices and initiatives implemented on experienced low volumes of work due to minimal capital approvals, delivery of the project is now underway. The group WBHO’s Engineering School. In the year we invested R91,2 million other projects. This visible and proactive safety culture adopted expenditure from our mining clients. Opportunities within our has identified various claims against both the design consultant (FY2018: R85,7 million) in the training of employees within the by senior management has permeated into our construction traditional African building markets have largely dried up and and the ultimate client and these are being pursued in terms of African operations. A significant portion of this related to the teams and is yielding positive results. we are currently exploring new work prospects closer to home the group’s contractual rights. increased participation in WBHO’s management, artisan and in southern Africa. We continue to maintain a conservative risk skills, safety and environmental training interventions. We are, however, deeply saddened to report that we had three appetite when bidding on projects, giving due consideration Our gradual penetration into the UK market bore fruit this year with work-related fatalities this year. All incidents were investigated to the potential exposures of working for previously unknown operations from the region contributing 14% of group revenue at a Retention of up and coming engineers and quantity surveyors and the main learnings were taken on board and implemented to clients, payment risk and political environments. On a positive 4,0% margin, the turnaround and restructuring of the Byrne Group remains a keen focus area when developing our future leaders, reduce the risk of reoccurrence. Our thoughts remain with the note we have delivered another strong performance from our has been successful leading the business back to profitability and building a corporate culture and delivering on the needs of the families of Messrs Aldridge Potgieter, Solwethu Siyali and Roads and earthworks division in Botswana and improved our acquisition and integration of Russells Limited and Russell business. Locally, the group works with the Engineering Council Moemedi Mpho who tragically lost their lives in the year. activity from our Civil engineering division in Zambia. Homes went according to plan. of South Africa (ECSA) to assist with the retention of this vital skill, not only for WBHO but for the industry as a whole. During the Overall, the African business has performed well, with total revenue year, WBHO successfully registered 12 new candidates with up marginally from the previous financial year. Considering the ECSA bringing the total number of candidates registered to prevalent market conditions, this has been a remarkable 124 over the past four years.

54 WBHO Integrated Report 2019 WBHO Integrated Report 2019 55 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER CONTINUED SASOL FINE ASH DAM 6 Unrest and disruptions from communities, business forums and In the UK, both Russells and the Byrne Group have sufficient taxi associations have become commonplace and increasingly work on hand for the year ahead. Although the British political Construction of 560 00m3 violent thereby threatening the safety of our people and landscape is currently in turmoil and the potential impact of impacting productivity; this remains a concern and needs urgent Brexit remains unknown, I have confidence in the long-term return water dam and resolution. The safety of our employees is always the highest benefits our investment into the UK will provide to the group service corridor priority. We have addressed this at the highest levels within both and its stakeholders. SAFCEC and government and remain optimistic that with the new political leadership in place, law and order will return. APPRECIATION PROJECT VALUE WBHO is committed to maintaining the highest standards of The 2019 financial year has proven to be one of the most environmental protection throughout every phase of the challenging in our history. Yet despite these many challenges, construction process and does so by rigorously applying the WBHO has continued to excel. This success is built on the R1,1 billion best practice principles of environmental management. No culture we have fostered within the group over many years, penalties or fines for non-compliance with environmental laws the tireless dedication and effort from our employees and the have been incurred across the group this year. A key focus area continued support and loyalty from our clients. I would also like PROJECT DURATION for us going forward is to develop and implement various waste to thank the WBHO Board and management, all of whom have reduction initiatives, especially with the focus on reducing the provided valuable support and advice during the year. plastic waste across the business. Mike Wylie recently announced his pending retirement from 27 months WBHO at the upcoming annual general meeting after serving more OUTLOOK than 45 years with the company. Mike’s dedicated commitment The group is well positioned for the next 12 months. Order book and service not only played a vital role in the growth and success levels have been maintained with 83% of 2019 group-wide revenue of WBHO but has also been pivotal in steering the transformation already secured for the next financial year. The South African order agenda of the industry and restoring its relationship with book has grown by 23% since this time last year and, in addition, a government. I wish him and his family well in his retirement. number of state-owned enterprises, namely Airports Company of South Africa (ACSA), Eskom, Transnet and SANRAL have recently It is with great honour that I follow Mike’s footsteps as Chairman advertised multiple multi-billion rand construction contracts in the of the group in the years to come and take pleasure in welcoming market. This is extremely positive for the mid-term prospects of Mr Wolfgang Neff to the board as WBHO’s new Chief Executive both WBHO and the industry at large. Officer with effect from 20 November 2019.

While there has been a shift in workload between geographies in the rest of Africa, future activity levels as a whole have been retained. The gas-related infrastructure projects in Mozambique Louwtjie Nel offer numerous opportunities and will help to offset reduced Chief Executive Officer activity in West Africa. At the time of writing, I’m pleased to report that we have secured our second gas-related infrastructure project (in consortium) in the region, being a camp to accommodate 9 500 personnel in Area 1 of the Annadarko LNG Project.

The Australian construction market is expected to remain buoyant, offering numerous opportunities across both building and infrastructure markets. However, we will continue to pursue our current strategy to constrain any further growth as we embed our focus on project execution.

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OPERATIONAL REPORTS BUILDING AND CIVIL ENGINEERING

REVENUE OPERATING OPERATING CAPITAL PROJECTS Building revenue declined to R5,9 billion (FY2018: R6,1 billion) as (Rm) PROFIT (Rm) MARGIN (%) EXPENDITURE (Rm) NEGOTIATED (%) The year in perspective general building activity remain in decline.

• Revenue stable in FY2019 (FY2018: decline of 10%) The low-growth economic environment together with an 2019: 7 338 2019: 304 2019: 4,1 2019: 37 2019: 40 • 18% contribution to group revenue (FY2018: 21%) oversupply of retail and commercial space continues to delay • 2% decline in South Africa the feasibility of large-scale building projects in Gauteng where 2018: 7 302 2018: 332 2018: 4,5 2018: 76 2018: 60 • 20% increase from the rest of Africa revenue decreased by 7%. The number of negotiated projects • Overall margin of 4,1% (2018: 4,5%) decreased to 40% as a result. The division has, however, • Margin pressure prevalent across all sectors successfully modified its bidding strategy and cost allocation NUMBER OF TRAINING LTIFR (per million man • Consistent execution of projects with no major when tendering against mid-tier contractors for smaller sized EMPLOYEES RETRENCHMENTS SPEND (Rm) hours worked) underperforming contracts contracts in order to sustain activity levels. Retail activity remains confined to the refurbishment of existing 2019: 3 616 2019: 183 2019: 40,6 2019: 0,25 The Building and civil engineering division has performed shopping centres and commercial office activity continues to extremely well to sustain revenue levels in a shrinking market. taper, although it remains the largest contributor toward activity 2018: 3 683 2018: 205 2018: 37,4 2018: 0,86 A 5% decrease in building activity was offset by growth within in the region. Major office developments under construction in the Civil engineering division, predominantly in Zambia. While Gauteng during the year included developments at 92 Rivonia operating profit declined to R304 million (FY2018: R332 million), and 2 Pybus in Sandton, a new head office for Deloitte in the operating margin was maintained above 4,1%, reflecting the Waterfall, the 144 Oxford Street development in Rosebank and division’s ability to effectively secure and execute projects in a REVENUE (Rm) OPERATING PROFIT (Rm) new head offices for Barloworld and Exxaro in Tshwane. low-margin environment. 8 000 300 The lower activity within the Building division resulted in the Increased activity within the healthcare, residential and student retrenchment of 183 employees during the year and the overall accommodation sectors, together with a number of rejuvenation 6 000 headcount decreased marginally from 3 683 to 3 616. The projects within the Johannesburg City Centre, have 200 division also experienced a number of senior and up and coming compensated for the lower activity levels experienced in the other middle management employees emigrating to other countries. sectors. These projects include additions to the Millpark Hospital 4 000 Capital expenditure reduced to R37 million (FY2018: R76 million) for Netcare, construction of student accommodation and residential apartments in Tshwane while in the city centre, the 100 as activity levels declined while training spend increased by 9% 2 000 from R37,4 million to R40,6 million with the division continuing to refurbishment of the Absa Towers and two buildings in the invest heavily in employee development. Jewel City Precinct are progressing well.

0 0 The division achieved a LTFIR of 0,25 for the year, a dramatic The coastal regions produced solid results where a particularly 2019 2018 2019 2018 improvement over the LTIFR of 0,86 recorded in FY2018. This strong performance in the Eastern Cape offset marginal declines improvement is attributable to the full implementation of the Visible in activity in both the Western Cape and KwaZulu-Natal. South Africa Rest of Africa South Africa Rest of Africa Field Leadership programme this year and the division embracing the intensified focus on safety by senior management. In the Western Cape, the delayed award of the new offices for Capitec impacted anticipated activity in the first half of the year, Wealth distribution (%) Wealth distribution (%) Notable achievements with the Civil engineering division include ultimately resulting in a slight decline in revenue over the prior REVENUE BY SECTOR (%) the Kusile Joint Venture reaching 4 million lost-time injury (LTI) free hours, the Grootegeluk project reaching 2 million LTI free hours year. Commercial office developments comprised 35% of activity, and the Zambian operations achieving 1,5 million LTI free hours supported well by activity in the residential, retail, mixed-use and 3 7 7 9 13 as a whole. healthcare sectors. Major projects included the new offices for 4 11 Capitec, ongoing construction of the Axis and Palm Vue 16 apartments in Century City, extensions to Checkers in Constantia Building and completion of the mixed-use Yacht Club development along 18 2019 13 2018 • Division performed well to sustain activity levels the V&A Waterfront. Construction of a new biomed facility for the Stellenbosch University also gained traction in the second half of 7 • Concentration of work in commercial office sector – but GHANA sector is in decline due to oversupply the year. 38 • Increase in residential-only and mixed-use developments In KwaZulu-Natal, the division delivered good results given that a 14 13 • Retail sector remains subdued 22 nine-month delay to the Oceans residential development in 5 • Revenue sustained in Gauteng despite fewer large-scale Umhlanga impacted revenue generation. The Umhlanga Arch Employees Retail Government Employees Industrial Government projects available Providers of capital Retained for growth Providers of capital Retained for growth mixed-use development created a strong baseload of work Commercial Energy infrastructure • Diminishing building opportunities in KwaZulu-Natal – Employees Government Employees Government through the year, supported by the completion of the Suncoast Providers Residential of capital Retained for growth Providers Civil works of capital and miningRetained infrastructure for growth industrial sector targeted to support activity Health, leisure and education Social housing • Majority of projects in the Western Cape negotiated Casino. The number of available building opportunities within the ZAMBIA Mixed-use developments • Healthy growth achieved in the Eastern Cape following region has diminished, forcing the division to bid upon projects in improved order intake the highly competitive industrial warehouse sector. This required MOZAMBIQUE • Awarded PMR.Africa 2018 Diamond Arrow Award major adjustment to the site overhead traditionally allowed for without compromising on delivery and quality. As a result, the division secured three new warehouses from this sector and is SOUTH AFRICA successfully executing these projects within tender allowables.

58 WBHO Integrated Report 2019 WBHO Integrated Report 2019 59 BUILDING AND CIVIL ENGINEERING CONTINUED UMHLANGA ARCH Activity in the Eastern Cape showed a marked improvement during the year with revenue increasing by 63% following the Premier mixed-use development award of two large new projects at the East London Industrial comprising ofﬁ ce, retail and Development Zone. Ongoing progress on the Milkwood Social Housing project, Akacia Medical Facility and the completion of hotel space as well as luxury various buildings at the BAIC automotive facility also contributed apartments strongly.

In Ghana, in addition to the exit of the division’s traditional PROJECT VALUE customer base from the region in the prior year, the lack of available opportunities was further compounded by reduced building activity in general. Construction of a new mall in Takoradi R808 million and extensions to Game Stores in Accra continued through the year, while a smaller project for South African Breweries was also secured and completed during the year. PROJECT DURATION

Civil engineering 33 months • Local civils market remains constrained • Declining activity in West Africa offset by improved activity in Zambia driven by mining and renewable energy infrastructure spending • Construction of the commercial crude oil terminal facility progressing well

Revenue from the Civil engineering division grew pleasingly to R1,4 billion (FY2018: R1,2 billion) as increased revenue both locally and in Zambia offset declining activity in West Africa following the completion of projects in Guinea and Ghana.

The local market remains constrained with limited opportunities and activity was sustained by the base load of work at the commercial crude oil terminal facility at Saldanha (in conjunction with the Roads and earthworks division) and the reaccess works at the Kusile Power Station. The group continues to adopt conservative profit recognition on the crude oil terminal facility pending the resolution of various contractual issues. In the coal mining sector, the construction of a rapid load out station at the Grootegeluk mine in Limpopo was completed while a coal-handling facility at Belfast is progressing well.

Revenue in Zambia increased significantly as construction of new infrastructure surrounding the concentrator at the Mopani mine in Mufulira and the Ngonye solar photovoltaic power plant in Lusaka continued through the year.

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OPERATIONAL REPORTS ROADS AND EARTHWORKS

REVENUE OPERATING OPERATING CAPITAL PROJECTS Revenue increased by 5,2% to R3,7 billion in the current year. (Rm) PROFIT (Rm) MARGIN (%) EXPENDITURE (Rm) NEGOTIATED (%) The year in perspective Roadwork projects and infrastructure for the mining and energy sectors underpinned activity levels. Limited new opportunities • Revenue levels stable (FY2018: 15%) were available within the roadwork sector with revenue being 2019: 5 295 2019: 343 2019: 6,5 2019: 237 2019: 21 • 5% growth in South Africa generated from existing secured projects. These comprised • 11% decline from the rest of Africa ongoing upgrades to the N2 and N6 for SANRAL, extensions to 2018: 5 282 2018: 371 2018: 7,0 2018: 187 2018: 25 • 13% contribution to group revenue existing roads at Saldanha for the Western Cape provincial • Margin of 6,5% (FY2018: 7%) reflects challenging government, a new bridge for Transnet, also at Saldanha, and environment the rehabilitation of the N4 near Zeerust for Bakwena. New NUMBER OF TRAINING LTIFR (per million man • Further hampered by additional completion costs on awards from within the sector included new BRT projects in EMPLOYEES RETRENCHMENTS SPEND (Rm) hours worked) projects in Guinea and Mozambique KwaZulu-Natal and Johannesburg and an upgrade to the provincial road between Worcester to Robbertson for the Western Cape provincial government. 2019: 5 963 2019: 321 2019: 39,6 2019: 0,43 The Roads and earthworks division delivered solid results as activity in South Africa and Mozambique was sustained and a Roadspan, the road surfacing business unit within the division 2018: 5 852 2018: 38 2018: 39,7 2018: 0,30 significant increase in activity in Botswana offset declining mining also had a difficult year on the back of the declining levels of road activity in West Africa. Overall revenue was maintained at construction and rehabilitation opportunities. As a subcontractor, R5,3 billion, while a decrease in the operating margin from 7,0% to Roadspan is exposed to smaller main contractors within its 6,5% reflects both the challenging market conditions and sector and the increased levels of uncollectable debt incurred in the current environment remain a concern. REVENUE (Rm) OPERATING PROFIT (Rm) additional costs to complete projects in Guinea and Mozambique. Higher activity within the southern Africa region resulted in an Activity within the mining sector includes projects for a number of 4 000 300 overall increase in headcount to 5 963 (FY2018: 5 852), however, large mining houses: these entail raising of a tailings dam and lower activity in West Africa contributed to a sharp increase in the construction and upgrades of access roads for the Sishen Iron 3 000 number of retrenchments in the year. In total 321 employees were Ore Company, various earthworks and infrastructure to extend 200 retrenched compared to 38 in the previous financial year. the life of the Klipspruit mine for South32, earthworks and other civil works for the navigation pit at the Khwezela mine for Anglo 2 000 An increased plant requirement to support elevated levels of Coal and completion of the works at the Booysendal mine for mining infrastructure projects both in South Africa and Botswana, Northam Platinum. 100 resulted in capital expenditure increasing by R50 million to 1 000 R237 million in FY2019 (FY2018: R187 million). Major infrastructure projects under construction within the energy sector include the ongoing construction of a haul road, ash dam Regrettably, the division experienced two fatal incidents during 0 0 and accompanying earthworks and infrastructure for SASOL, 2019 2018 2019 2018 the year, one in Botswana where a WBHO employee was fatally and the division’s participation in the construction of the crude oil injured and one in South Africa where two subcontractor terminal facility at Saldanha. South Africa Rest of Africa South Africa Rest of Africa employees lost their lives in a traffic accident. These incidents contributed toward poorer safety statistics with the LTIFR The bulk of the division’s Pipeline activity was derived internally increasing to 0,43 (FY2018: 0,30). this year by offering clients a full suite of construction services Wealth distribution (%) Wealth distribution (%) alongside the group’s other divisions. These included extensive REVENUE BY SECTOR (%) Training spend declined by 0,1% percent from R39,7 million to pipeline expertise and construction services at the crude oil R39,6 million as we address the ongoing skills shortage at middle terminal facility in Saldanha, the ash dam for SASOL and at the management level. 3 Klipspruit mine for South32. For external customers, the division 5 5 4 executed contracts for Nsezi Water, comprising construction of a Illegal work stopages increased significantly this year. The 11 raw water pipeline as well as various small works contracts for 28 division is predominantly impacted by rural communities on its 33 Joburg Water, Egoli Gas and the City of Cape Town. In the second mining infrastructure and roadwork projects as well as taxi 23 BURKINA FASO half of the year the division secured the long awaited Zulti pipeline associations on bus rapid transit projects in the cities. GUINEA contract for Richards Bay Minerals, comprising a 42 kilometres 2019 2018 17 SIERRA LEONE pipeline connecting the northern section of the existing mine, with the Zulti South, as well installing communication cables and a GHANA South Africa water pipeline from the mine to the coast. • Solid performance in a challenging market 22 Further low cost housing projects were secured in KwaZulu-Natal 18 • Growth in revenue supported by mining and energy 31 and the Eastern Cape during the year with 2 112 houses infrastructure sectors Roadwork Roadwork Mining infrastru Roadwork Pipelines Mining infrastru constructed for rural communities this year and a further 1 744 Providers of capital Retained for growth Providers of capital Retained for growth • Decline in roadwork – activity supported by existing Mining infrastructure Low-cost housing on hand to be constructed over the next two years. The division Employees Government Employees Government projects with only three new projects secured in FY2019 Providers ofEnergy capital infrastructureRetained for growth Providers Water andof capital rail infrastructureRetained for growth has become a significant participant in the sector, having been • Coal mining infrastructure projects for three large mining acknowledge for its timeous delivery, high levels of quality and houses commitment to the participation of local communities. The MOZAMBIQUE • Pipeline market remains highly competitive – large effectiveness of government appointed implementing agents and BOTSWANA proportion of work derived internally by offering clients a NAMIBIA payment collection remains significant risks. full suite of construction services ESWATINI (SWAZILAND) • Increased activity in low-cost housing market with SOUTH AFRICA additional projects secured in KwaZulu-Natal and the Eastern Cape

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ROADS AND EARTHWORKS CONTINUED ORAPA FRD

Rest of Africa Earthworks and civils for

• Sharp decline in activity in West Africa as existing the ﬁ nes residual dam at the projects completed Orapa mine in Botswana • Increased mining infrastructure activity in Botswana • Award of a new road project in eSwatini (Swaziland) and early works for the Lesotho Highlands Water Project PROJECT VALUE • Construction of first gas-related infrastructure project underway – and access road in Palma Pula 565 million

Revenue from the region declined by 9,8% to R1,6 billion as revenue growth of 52% from Botswana, following the award of a PROJECT DURATION number of mining infrastructure projects, was unable to fully mitigate a sharp decline in activity in West Africa as existing projects reached completion. 24 months Mining infrastructure activity in Botswana comprised four projects for Debswana, three separate packages at the diamond mine in Orapa for the construction of a fines residual dam and related infrastructure and a further contract to raise a dam wall at the Jwaneng mine. Three work packages were also secured for the enabling works for a new copper mine for Khoemacau. The Tshwele Hills Rail project, executed by iKusasa Rail Africa, was completed during the year and a new contract was secured for construction of the approach and bridge railways at the Kazangula Bridge over the Zambezi River between Zambia and Botswana.

Despite increased activity in Mozambique over the first six months, total revenue for the year decreased by 5% following the completion of projects and a low order intake over the second half. Activity in the region centred around mining infrastructure at the Vale coal mine and completion of the rehabilitation of additional sections of the EN4. Regrettably, the division experienced technical challenges on an earlier section of the EN4 project that required rectification and impacted the overall margin. On a positive note the division secured its first infrastructure project in relation to the gas fields in Palma, where construction of a new community road commenced in the second half of the year.

Revenue from West Africa fell sharply as projects in Guinea and Burkina Faso reached completion without being replaced and only one new project was secured in Ghana during the year. In addition to the lower activity levels experienced, profitability was further impacted by additional unexpected costs to complete the Sigiri project in Guinea.

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OPERATIONAL REPORTS AUSTRALIA

REVENUE OPERATING OPERATING CAPITAL PROJECTS Ongoing construction includes the multi-storey residential (Rm) PROFIT (Rm) MARGIN (%) EXPENDITURE (Rm) NEGOTIATED (%) The year in perspective Greenland tower and a mixed-use retail and residential project at Edmondson Park in Sydney as well as a large-scale mixed-use • Overall revenue sustained (FY2018: 22% growth) residential and hotel development at Westside Place in Victoria, 2019: 21 713 2019: 335 loss 2019: (1,5) 2019: 82 2019: 23 • 8% revenue decline in building business which is currently the building business’s largest project at 2018: 21 941 2018: 278 profit 2018: 1,3 2018: 49 2018: 20 • 31% growth in infrastructure business approximately AU$700 million. Work within the commercial • 53% contribution to group revenue (FY2018: 63%) sector continues at 311 Spencer Street, a commercial tower for • Unprecedented loss of AU$33 million the Cbus Superannuation Fund (Cbus), housing the Victoria • Negative margin of 1,5% (FY2018: 1,3% profit) Police Department along with a new tower at the Victoria NUMBER OF TRAINING LTIFR (per million man University Campus in Melbourne. In Queensland, operational EMPLOYEES RETRENCHMENTS SPEND (Rm) hours worked) focus is concentrated on the challenging 443 Queen Street Revenue from the Australian business declined marginally by 1% to residential project to ensure delivery for Cbus. AU$2,1 billion. Otherwise solid results remained overshadowed by 2019: 1 139 2019: 116 2019: 4,8 2019: 0,73 the provision for future losses and a reversal of previously 2018: 1 219 2018: 86 2018: 7,2 2018: 1,72 recognised profits on the Western Roads Upgrade (WRU) project in Melbourne at the interim reporting date. Consequently, an Infrastructure and civil engineering operating loss of AU$33 million was recorded for the year • Infrastructure markets remain buoyant supported by (FY2018: AU$28 million profit). No further provision for losses has increased levels of public spending REVENUE (Rm) OPERATING PROFIT (Rm) been recognised on the project in the second half of the financial • Activity in the Eastern region concentrated on year. loss-making WRU project 20 000 400 • 30% revenue growth in the Western region and solid The focus on improved safety training and awareness contributed profit contribution to a significant improvement in the LTIFR of 0,73 (FY2018: 1,72) in 15 000 the year. The number of staff decreased to 1 139 (FY2018: 1 219) 0 compared to the previous financial year. Revenue from the infrastructure and civil engineering business 10 000 was up 31% to AU$470 million. The Infrastructure business in the Western region performed satisfactorily where revenue increased (400) 5 000 Building by 33% at a margin of 4,7%. Revenue from the Eastern region also grew strongly by 30% but profitability was impacted by the • Strong fixed investment in the Melbourne and Sydney WRU project discussed below. 0 (800) markets with a focus on mixed-use development 2019 2018 2019 2018 mega-projects • Opportunities within retail and residential markets WRU PROJECT Building Infrastructure Building Infrastructure remain subdued The WRU project is a single design and construct contract • Moderate decline in revenue from Probuild – focus on comprising eight separate work packages of which four were project execution subcontracted and four are being self-executed. Following Wealth distribution (%) Wealth distribution (%) • Melbourne and Sydney markets comprise 63% of lengthy delays in obtaining approval of the designs for the REVENUE BY SECTOR (%) building revenue self-executed packages and a subsequent extensive due • Strong growth of 76% in Perth diligence process, management identified an incorrect 5 3 • Reduced bidding activity in Queensland with focus interpretation by the design consultants of the technical 12 16 centred on delivery of challenging project specifications. 30 39 This misinterpretation resulted in the underestimation of the Revenue from the building business decreased by 8% from physical works necessary to meet the output specifications of the 16 2019 13 2018 AU$1,8 billion to AU$1,7 billion for the year ended 30 June 2019, contract and the recognition of a provision for the anticipated future costs to execute those additional works. QUEENSLAND reflecting the strategic decision to constrain further revenue growth in order to focus on improving project execution. This resulted in The design approval for the self-executed packages has now an improvement in the operating margin from 1,0% to 1,3%. 15 been substantially resolved and physical works on those 17 22 12 The following major projects were completed and handed over packages have started. Roadwork ResidentialMining infrastru Roadwork Retail Mining infrastru NEW successfully this year; EQ residential tower in Perth; the 271 Spring Providers of capital Retained for growth Providers of capital Retained for growth WESTERN AUSTRALIA SOUTH Employees CommercialGovernment Employees Health and leisureGovernment Street commercial tower, further sectional handovers of apartments Infrastructure Other WALES Providers of capital Retained for growth Providers of capital Retained for growth in the Aurora tower, Caulfield residential tower and the Glen Shopping Centre all in Melbourne, and the Queen Wharf VICTORIA Excavation project in Brisbane.

66 WBHO Integrated Report 2019 WBHO Integrated Report 2019 67 AUSTRALIA CONTINUED THE RITZ CARLTON AT ELIZABETH QUAY Significant focus is now being placed on pursuing the contractual rights of the business in terms of the contract. These comprise 379 residential apartments material delay claims against the design consultants as well as across two sites and a six-star other delay claims and variations against the ultimate client. A specialist third party consultant has assisted in compiling the 205 room Ritz Carlton Hotel claim against the design consultants and it is expected this claim will be submitted within the next month. PROJECT VALUE Management has adopted a view on the outcome of these expected claims in determining the provision for future loss on the project and believes the full extent of the potential loss has AU$413 million been recognised with the information currently available. In the year, WBHO recognised a AU$57 million (R578 million) loss on the projects. PROJECT DURATION The four subcontracted packages are performing well with final commercial acceptance expected on differing dates toward the end of the 2019 calendar year and the first quarter of 2020. 23 months During the second half of the year, the business strategy in the Eastern region was modified to reduce risk allocation on prospective new work, focusing on lower risk construction-only projects and, where possible, maintenance contracts. This strategy is now akin to the successful strategy of the Western region. Projects in the Eastern region in line with expectation with new work conversion is slowing while the new strategy is implemented.

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OPERATIONAL REPORTS UNITED KINGDOM

REVENUE OPERATING OPERATING CAPITAL PROJECTS Revenue from the United Kingdom (UK) operations grew by (Rm) PROFIT (Rm) MARGIN (%) EXPENDITURE (Rm) NEGOTIATED (%) 137,4% to R5,7 billion following the acquisition of Russells Limited Russells Limited at the beginning of the year. Operating profit improved to R228 million following a loss of R133 million from the Byrne Group. • Increasing population is underpinning growth in 2019: 5 684 2019: 228 2019: 4,0 2019: 13 2019: 7 (Byrne Group) In FY2018, the Byrne Group was equity-accounted as an Manchester 2018: 2 394* 2018: 133 loss* associated company and only R57 million of currency gains was • Residential and hotel sectors continued to drive record 2019: 75 (Russells Limited) disclosed in the segmental report of the prior year audited levels of real estate development • Commercial office developments also on the increase consolidated financial statements. • Revenue exceeded £100 million for the first time but in NUMBER OF TRAINING LTIFR (per million man line with expectations EMPLOYEES RETRENCHMENTS SPEND (Rm) hours worked) • Operating profit of £8 million at a 7% margin Byrne Group

• London construction market offered sufficient 2019: 1 127 2019: 14 2019: 3 2019: 3,94 opportunities in the year but softened over the last Russells performed in line with expectations achieving revenue in quarter excess of £100 million for the first time and operating profit of • Successful restructuring of the business £8 million. Russells operates within a broad range of sectors with – 46% increase in revenue, 34% decrease in overheads the Manchester residential market particularly buoyant currently. REVENUE (Rm) OPERATING PROFIT (Rm) and reduced restructuring costs Residential activity accounted for 46% of the revenue for the year, – Return to profitability in FY2019 with the hotel sector contributing 33%, the industrial sector 9% 4 000 200 • No major underperforming contracts and commercial sector contributing 12% toward total revenue. 3 500 • Operating profit of £5,8 million at a margin of 2,9% A notable achievement in the year was the completion of the 3 000 100 £35 million refurbishment of NOMA’s flagship Hanover project in 2 500 The Byrne Group returned to profitability assisted by an increase Manchester which has been hailed as one of the city’s best 2 000 0 in revenue of 46%, solid execution of projects and the decisive heritage projects of recent times. Not only has the building, and 1 500 action taken by the group to reduce its fixed cost base. Operating the wider regeneration scheme, been hailed for providing an 1 000 (100) profit amounted to £5,8 million at a margin of 2,9%. economic resurgence in the north of the city centre, the project itself has been recognised with a slew of awards including: The 500 Byrne Brothers, the specialist concrete frame business, RICS North West award for Building Conservation Project of the 0 (200) completed projects on a new research facility and offices in Year: British Council of Offices 2019 Refurbishment of the Year; 2019 2018 2019 2018 Cambridge, a 27-storey commercial office building in Canary and North West Business Insider Property Awards – Commercial Byrne Group* Russells Byrne Group* Russells Wharf, the remodelling of Wimbledon Courts 1 and 19, a Development of the Year. 41-storey commercial office building in Bishopsgate, a 6-10 * For comparative purposes only. Byrne Group accounted for as an storey commercial office building in the Stratford International The company is currently on site with 12 projects within associate until 30 June 2018. Quarter and a 14-storey commercial office building attached to Manchester. The £35 million Axis Tower and £80 million Oxygen Westfield, Stratford. Towers are two luxury residential developments. The Axis Tower project is considered one of the city’s most complex builds due Wealth distribution (%) Ellmer Construction, the new build, fit-out and refurbishment to the construction of 29 storeys on a 300 m2 footprint adjacent REVENUE BY SECTOR (%) contractor, completed projects in and around London which to a canal bank. In addition, Russells has been appointed to included 21 Young Street, the new build of 53 residential restore the elegance of some of Manchester’s heritage properties 1 apartments in Kensington, various fit-out elements at Tottenham as the main contractor for a series of large-scale refurbishment Hotspur’s new stadium including washrooms and bars, the off-site projects within the NOMA regeneration area. During the year a

29 manufacture and site installation of 362 high-end bathroom pods £35 million refurbishment of Hanover House, which is to become at Capco’s Lillie Square residential development in Earls Court, the Amazon’s new Manchester base, was completed for Hermes super-prime fit-out of a penthouse on Grosvenor Square and the Investment Management alongside as well as an £8 million 53 2019 creation of two new retail spaces for retailers Zara and River Island refurbishment of a grade two listed building in Dantzic Street. at Intu’s Lakeside Shopping Centre. A further £9 million refurbishment to upgrade 60 000 square feet of offices and adding a restaurant and café to the listed Redfern building is also now underway. 16

ResidentialRoadwork Mining Leisure infrastru Providers of capital Retained for growth CommercialEmployees Government Industrial MANCHESTER Providers of capital Retained for growth

LONDON

70 WBHO Integrated Report 2019 WBHO Integrated Report 2019 71 ROOKERY PITS, BEDFORD

An energy recovery facility designed to convert waste into low-carbon energy, able to meet the demands of 112 000 homes

PROJECT VALUE £23 million

PROJECT DURATION 15 months

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OPERATIONAL REPORTS CONSTRUCTION MATERIALS

REVENUE OPERATING OPERATING CAPITAL NUMBER OF Given the current distress within the construction industry, (Rm)* PROFIT (Rm) MARGIN (%) EXPENDITURE (Rm) EMPLOYEES Reinforced Mesh Solutions Reinforced Mesh Solutions (RMS) is proactively implementing its commercial and contractual rights as well as strengthening its • Steel sales impacted by low construction activity credit management processes in an effort to reduce exposure to 2019: 976 2019: 20 2019: 3,5 2019: 6 2019: 144 • Influx of low-cost rebar suppliers the non-collection of debt. This has proven successful for the 2018: 842 2018: 5 2018: 1,0 2018: 3 2018: 115 • Focus on strengthening credit management processes business with minimal impact from companies that have been • Remain under pressure until construction activity liquidated or entered business rescue this year. improves With the exception of the Springbok branch in the Northern Cape TRAINING LTIFR (PER MILLION where the business is supplying and fixing steel on a large RETRENCHMENTS SPEND (Rm) MAN HOURS WORKED) Trading conditions within the steel supply industry remain windfarm project, the remaining inland branches of RMS difficult. Competition amongst rebar companies has been experienced low volumes. aggressive in an effort to secure work in a declining market. The coastal branches had a good year with improved volumes 2019: 0 2019: 3,3 2019: 1,3 Margins are unsustainably low which together with a slow although margins in KwaZulu-Natal remain exceptionally tight payment environment has placed increased pressure on cash 2018: 0 2018: 0,9 2018: 3,1 amid strong competition. flows within the business. Overall the business achieved revenue of R580 million (FY2018: R501 million) and an operating profit of The group anticipates further challenges through FY2020. R20 million (FY2018: R5 million). * Gross revenue before eliminating inter-group.

N6 ROUXVILLE TO SMITHFIELD

Rehabilitation of National Route N6 Section 6 from the south of Rouxville to the south of Smithﬁ eld

PROJECT VALUE R385 million

PROJECT DURATION 32 months

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ORDER BOOK AND OUTLOOK

ORDER BOOK BY SEGMENT Order book marginally down by 4% to R47 billion. 83% of FY2019 revenue secured for FY2020. At At 2021 30 June 30 June and Rm % 2018 % 2019 2020 beyond

Building and civil engineering 12 5 985 14 6 446 5 269 1 178 The group’s order book at 30 June 2019 decreased by 4% from R49 billion to R47 billion. The South African market is anticipated to remain Roads and earthworks 9 4 165 12 5 796 4 380 1 416 challenging due to the poor economic outlook. Further consolidation is anticipated in the construction industry which should benefit WBHO Australia 66 32 565 58 27 316 18 215 9 101 over the medium term. Opportunities to the rest of Africa are limited, while sentiment in Australia and the United Kingdom (UK) remains positive. United Kingdom 13 6 446 16 7 810 5 818 1 992

The movement in the order book comprises a 39% and 8% increase in the order books of the Roads and earthworks and Building and Total 100 49 161 100 47 368 33 682 13 686 civil engineering divisions respectively, a decrease of 16% in the order book of Australia in line with strategy and an increase of 21% in the order book of the UK operations following the inclusion of the order book of Russells Limited.

Having secured 83% of the revenue achieved in FY2019 WBHO is poised for a solid performance in the forthcoming year. Order book by segment (%)

2 16 14

GROUP ORDER ORDER BOOK AUSTRALIAN UK OPERATIONS 29 83% OF FY2019 BOOK DOWN 4% FOR AFRICAN ORDER BOOK NOW COMPRISE 12 REVENUE SECURED OPERATIONS TO DOWN 16% 16% OF TOTAL R47 billion FOR FY2020 2019 2019 53 UP 21% ORDER BOOK

58 16

AFRICA AUSTRALIA Building and civil engineering Australia Roads and earthworks United Kingdom South Africa • Order book down by 16% • Local market conditions likely to remain subdued over • Market sentiment anticipated to remain positive over the the short term mid-term, particularly Melbourne and Sydney • WBHO has sufficient work secured to manage through • Public infrastructure spending will continue ORDER BOOK BY GEOGRAPHY this period • Consolidation of building business and renewed focus At At 2021 • Progress made by government in restoring sound on project selection and delivery to continue 30 June 30 June and governance within state-owned enterprises • Lower risk construction-only infrastructure projects will Rm % 2018 % 2019 2020 beyond • Multiple multi-billion rand projects recently announced be targeted South Africa 18 8 698 23 10 704 8 308 2 396 by ACSA, Transnet, Eskom and SANRAL. Due to long • Decreasing residential activity Rest of Africa 3 1 452 3 1 538 1 341 197 lead times, these would only yield results from FY2021 • Good growth in hotel and leisure sector Australia 66 32 565 58 27 316 18 215 9 101 • Re-emergence of large-scale public infrastructure will • Significant growth in proportion of infrastructure in United Kingdom 13 6 446 16 7 810 5 818 1 992 assist mid-term recovery of the local industry project portfolio • Healthy project pipeline across most markets Total 100 49 161 100 47 368 33 682 13 686 Rest of Africa • Shift toward southern and eastern African countries as West African markets remain subdued • Gas-related infrastructure projects in Mozambique Order book by geography (%) awarded with strong pipeline of potential new work UK • Mining activity in Botswana currently upbeat • UK footprint firmly embedded 16 13 18 • Impact of Brexit remains an unknown 23 • Combined UK operations reflect 100% of FY2019 revenue secured for FY2020 3 • Declining order book for Byrne Group reflects softening 3 markets. Prior year included £60 million project that 2019 2018 was cancelled • Increased opportunities in civil engineering sector for Byrne Group 66 • Russells Limited positioned for growth as the preferred 58 contractor within a strong Manchester market

South Africa Australia Rest of Africa United Kingdom

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ORDER BOOK AND OUTLOOK CONTINUED

BUILDING AND CIVIL ENGINEERING ROADS AND EARTHWORKS At At At At 30 June 30 June 30 June 30 June Rm % growth 2019 2018 Rm % growth 2019 2018

South Africa 18 6 348 5 374 South Africa 29 4 290 3 323 Rest of Africa (84) 98 611 Rest of Africa 71 1 440 842

Total 8 6 446 5 985 Total 39 5 730 4 165

Public versus private (%) Sector spread (%) Public versus private (%) Sector spread (%) 7 9 16 4 4 4

16 31 29 18 23 2019 2019 2019 2019 10

69 14 84 22 18 22

Public Private RetailEmployees Government Mixed-used developments CommercialProviders of capital Retained Industrial for growth Public Private RoadworkEmployees PipelinesGovernment ResidentialEmployees Government Energy infrastructure Mining infrastructureProviders of capital Low-costRetained forhousing growth Employees Government Health,Providers leisure of capital and Retained Civil for works growth and mining Energy infrastructure Water and rail infrastructure Providers of capital Retained for growth education infrastructure

Despite lacklustre conditions across general construction residential and mixed-use developments and an increase in The 39% growth in the order book of the Roads and earthworks Mining infrastructure activity within the coal sector continues for markets, the Building and civil engineering division begins the industrial warehouses both in KwaZulu-Natal and the Eastern division includes a healthy 29% growth locally, bolstered by the Exxaro, Anglo Coal and South32 with additional work for a 20km new year with a strong order book with 72% of FY2019 revenue Cape will form the bulk of work to be executed. award of additional work for Sasol and the large-scale Zulti dragline being awarded by Anglo Coal at the Khwezela mine near secured for FY2020. Building markets in West Africa remain particularly difficult with Pipeline project for Richards Bay Minerals during the year. Emalahleni. While local building markets remain subdued, through its ability to Ghana currently offering limited opportunities. As a result, the The order book for the rest of Africa grew by 71% following a In Botswana, activity will be focused on executing the existing execute projects in a challenging environment, the Building division division is actively pursuing opportunities in Botswana, strong order intake in Botswana during the year as well as the mining infrastructure projects on hand. However, opportunities remains the preferred contractor, particularly on larger projects. Zimbabwe and Mauritius. award of a road project in Swaziland and the early works for the exist within the water infrastructure market pending the In Gauteng, the division has sufficient work on hand through the The local order book of the Civil engineering division remains in Lesotho Highlands Water Project. adjudication of bids submitted for further phases of the first six months of the new financial year and the award of a new line with that of the previous year and includes completion of the North-South Carrier pipeline. large-scale warehouse subsequent to 30 June 2019, together with The division begins the year with 83% of FY2019 revenue commercial crude oil terminal facility at Saldanha in the second a number of imminent negotiations, will support activity over the secured for FY2020. In Mozambique, the gas-related infrastructure projects on hand will half of the financial year, ongoing completion works at Kusile second half. form the bulk of activity in the region with numerous additional Power Station where the participation of the division has Locally, roadwork and mining infrastructure will underpin activity opportunities available from this sector likely to support activity in The KwaZulu-Natal building market hardened noticeably over the increased from 25% to 50%, and construction of the Copperton for the year ahead. The road construction and rehabilitation the region over the mid- to long-term. second six months, however, the division successfully bid for and and Garob windfarm in the Northern Cape. In Zambia, the order sector remains subdued with the only two new awards in the has been awarded a number of warehouses in the highly book has decreased as the work at the Mopani copper mine FY2019 year. The upgrade of the N4 near Machadadorp In West Africa, the division has submitted tenders for a number of competitive industrial sector. In the Western Cape, while the progresses, however, various mining and industrial opportunities recommenced following a 12-month delay due to community mining infrastructure projects in Ghana, Guinea, Sierra Leone tender market remains competitive, the division is able to continue to exist. In Mozambique, as the early works related to unrest. Ongoing construction of existing projects awarded during and Burkina Faso, however, the timing of adjudication and award negotiate most new projects with existing clients, with only the the gas infrastructure finally enter the market, the division has the course of FY2018 will, however, continue to support activity of these projects remains uncertain. new offices for Capitec and the Biomed research facility in been awarded a contract in consortium, for the construction of a from this sector in the year ahead. The recent announcement Stellenbosch secured in the open market during FY2019. 9 500 person camp in Palma, alongside the group’s Roads and from SANRAL indicating R40 billion to be spent on road earthworks division. upgrades over the next three years bodes well for the sector, Following a strong order intake in FY2019, the division is however, execution of these projects is only likely to commence positioned for solid growth in the Eastern Cape this year. The Building and civil engineering division has secured additional in FY2021. Each of the coastal divisions enters the new financial year with projects in excess of R1,2 billion between the end of the financial substantially full order books. Commercial office projects, year and the date of this report.

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ORDER BOOK AND OUTLOOK CONTINUED

AUSTRALIA UNITED KINGDOM At At At At 30 June 30 June 30 June 30 June Rm % growth 2019 2018 Rm % growth 2019 2018

Building (10) 21 717 23 997 Byrne Group (39) 3 959 6 446 Infrastructure (35) 5 599 8 568 Russells Limited 3 851 –

Total (16) 27 316 32 565 Total 21 7 810 6 446

Public versus private (%) Sector spread (%) Public versus private (%) Sector spread (%)

2 2 2 20 21 29

2019 2019 2019 2019 53

98 98 31 28 16

Public Private ResidentialEmployees Mixed-useGovernment development Public Private Residential CommercialProviders of capital InfrastructureRetained for growth Commercial Employees Government Hotels Providers of capital Retained for growth Industrial and civil works

Strong population growth and increased urbanisation continue to Garden residential development (a residential tower in which the The combined order book of the UK operations now comprises Activity within the London construction market showed signs support both building and infrastructure markets in Australia. business has a 20% development interest) above the recently 16% of the group order book with in excess of 100% of current of tapering over the last quarter of the year with fewer available completed Glen Shopping Centre. A further five projects to the year revenue secured for the year ahead. opportunities. The business is preparing to realign for an Non-residential building activity is expected to remain stable value of AU$359 have been secured by Probuild subsequent to increase in civil engineering activity and public sector work in with continued investment in Melbourne and Sydney. Probuild Within Byrne Brothers, ongoing construction of Google’s new 30 June 2019. anticipation of a potential private sector investment slowdown continues to maintain sound relationships with key clients head offices near London’s King’s Cross station, the One Nine due to Brexit uncertainty. resulting in repeat contracts. The business has been successful Australia’s population growth coupled with rapid urbanisation is Elms development comprising 58-storey and 42-storey residential in securing the last of the high-value residential projects for driving pressure on infrastructure requirements. Accordingly, the towers and the mixed-use development and 1-5 Grosvenor Place Russells was recently awarded a £34 million project for the repeat clients in the Melbourne and Sydney markets, which will current high levels of public sector spending are expected to will contribute strongly toward revenue in FY2020. In addition, late redevelopment of 193 apartments at Chatham Waters in Kent support activity from this sector in the year ahead. Large-scale, continue over the mid-term with the infrastructure deficit in the second half of the year the business secured a contract for as well as construction of a £43 million, 17-storey, 329-bedroom mixed-use developments continued to offer opportunities and estimated at AU$800 billion. The Infrastructure and civil civil works aimed at the ecological restoration of the Rookery Pits hotel in central Manchester. The residential and hotel sectors are these projects will be selectively targeted at acceptable levels of engineering order book at 30 June 2019 amounts to in Bedforshire as well as a new project in the nuclear sector. expected to continue to flourish in Manchester and the company risk. At the same time the business has positioned itself for an AU$566 million including the WRU project. Given the difficulties is well placed to take advantage of future opportunities having a Ellmer Construction’s secured order book includes the expected increase in commercial projects and select retail experienced on that project and reduced bidding capacity within proven track record of delivery in these sectors. development of 26 luxury apartments at Mayfair Park Residences projects over the short term. To maintain teams for these the Eastern region, the strategic focus will remain on securing in Mayfair, the super-prime fit-out of two further penthouses and anticipated large retail project opportunities, teams have been construction-only road projects as well as projects in the several apartments in Grosvenor Square, the off-site, modular engaged on smaller fit-out and commercial refurbishment renewable energy sector where the business has a successful construction of the washrooms for Google’s new head office and projects to maintain those teams of staff for the future. track record. an extensive refurbishment of the Kingsway Hotel. Recent awards include an AU$212 million student accommodation project for Curtain University in Perth, a mixed-use commercial project valued at AU$80 million known as Elizabeth North in Melbourne and the AU$178 million Glen Sky

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MESSAGE FROM THE

CHIEF The share price of the group declined noticeably following the announcement of losses relating to the WRU project in our interim results and closed the year at R110. However, following the release of these final results highlighting our ability to withstand the impact of WRU, the share price has recovered to R142 at the time of this report.

The condensed financial information included in the table below is extracted from the full audited financial statements of the group which FINANCIAL are available on the company’s website. The information is provided for reference purposes when reading this report. 2015 Condensed financial statements (R’000) 2019 2018 2017 2016 restated Revenue 40 614 297 35 028 475 31 906 660 30 650 309 28 823 384 OFFICER Operating profit before non-trading items 561 235 1 045 397 986 297 1 004 557 768 417 Non-trading items (48 394) (14 536) (205 729) (13 315) (191 330) Profits and losses from equity-accounted investments 51 958 (4 830) 68 916 45 659 46 189 Net finance income 183 447 168 467 240 894 203 014 115 942 Income tax expense (199 253) (351 053) (319 161) (395 715) (244 572) CHARLES HENWOOD Profit for the year 548 993 843 445 769 546 721 850 604 137 Property, plant and equipment 1 936 709 1 883 072 1 635 349 1 710 358 1 984 417 Goodwill 921 103 531 117 523 613 572 102 498 266 Long-term receivables 346 253 373 136 446 924 298 135 267 408 Equity-accounted investments 1 069 328 745 059 650 246 347 171 203 923 Deferred tax assets 903 657 667 779 631 799 558 840 462 279 Notwithstanding a disappointing overall ﬁ nancial Contract assets 1 423 218 1 816 792 758 001 514 438 1 058 957 Trade and other receivables 6 717 509 6 213 877 5 635 000 5 111 251 5 090 207 performance due to the impact of the Western Cash and cash equivalents 5 951 985 5 992 461 5 545 583 5 752 194 3 995 089 Other current assets 495 066 400 563 407 392 505 001 808 618 Roads Upgrade (WRU) project, the group has Total assets 19 764 828 18 623 856 16 233 907 15 369 490 14 369 164 Shareholders’ equity 5 872 186 5 811 639 5 300 505 5 428 429 4 565 742 once again delivered well this year. Steadfast Non-controlling interests 261 645 207 517 139 895 258 421 262 443 performances from both the African operations Total equity 6 133 831 6 019 156 5 440 400 5 686 850 4 828 185 Long-term liabilities 193 164 169 718 192 637 34 581 135 264 Deferred tax liabilities 174 131 27 527 57 211 24 253 47 708 and United Kingdom (UK) operations resulted in Contract liabilities 2 206 511 2 337 660 1 673 161 1 917 491 1 499 471 Trade and other payables 8 627 016 8 293 976 6 931 937 5 595 564 6 141 637 strong cash generation ensuring we maintained a Provisions 2 414 682 1 764 968 1 913 262 2 059 645 1 619 749 Taxation payable 15 493 10 851 25 299 51 106 97 150 solid ﬁ nancial position. Total liabilities 13 630 997 12 604 700 10 793 507 9 682 640 9 540 979 Cash flows from: Operating activities 1 147 906 927 687 822 173 1 375 389 2 007 101 While South African listed contractors have endured increasingly difficult operating conditions over the last five years, WBHO has Investing activities (867 136) (308 871) (180 448) 421 905 (263 250) sustained value for shareholders, maintaining its position as the largest contractor on the JSE by market capitalisation, achieving Financing activities (444 500) (219 924) (531 136) (322 322) (294 550) year-on-year revenue growth and sector leading profitability. KEY FINANCIAL STATISTICS AND RATIOS WBHO Share price versus Construction and Materials Index 2015 2019 2018 2017 2016 restated

Revenue growth Target > 10% 15,9% 9,8% 4,1% 6,3% 14,8% 40 Operating profit margin (%) Target 3-4,5% 1,4 3,0 3,1 3,3 2,7 20 Earnings per share (cents) 938,7 1 534,3 1 345,6 1 396,1 8 87,9 Headline earnings per share (cents) 932,3 1 414,6 1 3 07,9 1 342,9 1 085,0 0 Dividend per share (cents) 190 475 475 448 448 (20) Current ratio (times) 1,1 1,2 1,2 1,2 1,2 Debt/equity ratio (%) 2,7 2,9 2,0 2,2 5,9 (40) Effective tax rate (%) 26 29,4 29,3 31,9 33,1 (60) Return on capital employed (%) Target > 20% 12,4 19,8 22,3 22,9 18,0 2014 2015 2016 2017 2018 2019 Closing share price 10 989 14 950 13 999 12 582 9 920 Market capitalisation (Rm) 6 578 8 970 8 846 7 951 6 547 WBHO Construction and Materials Index Number of employees 12 121 11 018 9 837 9 131 10 687

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MESSAGE FROM THE CHIEF FINANCIAL OFFICER CONTINUED

REVENUE Group revenue increased by 16% from R35 billion in FY2018 to R41 billion in the current year due to the first-time consolidation of the Operating profit before non-trading items (Rm) UK operations. Revenue from the African and Australian operations was broadly in line with the previous year with the Australian revenue 1 200 1 045 including a foreign currency translation gain amounting to R426 million as the South African currency weakened slightly over the year. 1 005 986 Overall, the African operations contributed 33% (FY2018: 37%) toward group revenue, the Australian operations 53% (FY2018: 63%) and 1 000 768 the UK now a healthy 14% with the inclusion of the recently acquired Russells Limited. 800 561 As depicted in the graph below, the revenue growth of 41% achieved over the past five years has been driven by growth in the 600 Australian market and, in the current year, from our entry into the UK market. While there has been no growth achieved across Africa 400 over the same period, when considering the effects of political instability, poor economic growth and weaker commodity cycles on African markets, the group has in fact performed admirably to sustain activity levels. This prolonged period of stagnant growth in Africa 200 supports our recent strategy to expand into the UK market. 0

(200)

(400) Revenue (Rm) (600) 45 000 2015 2016 2017 2018 2019 40 614 40 000 Total South Africa Rest of Africa Australia United Kingdom 35 028 35 000 30 650 31 907 28 823 30 000

25 000 CASH BALANCES AND NET FINANCE INCOME A further positive achievement this year was the ability of the group to maintain its cash balances at approximately R6 billion at 30 June 2019, 20 000 especially after cash of R717 million (R88 million of which is included within cash flows from financing activities) was invested in Russells 15 000 Limited and Russell Homes Limited in the UK during the year. This was achieved by strong cash generation from operations (particularly in 10 000 the UK) amounting to R1,5 billion compared to R1,4 billion generated in the comparative period.

5 000 Cash outflows relating to capital expenditure amounted to R223 million (FY2018: R238 million) and instalments in respect of financed plant and equipment amounted to R171 million (FY2018: R63 million). An additional R98 million was also invested in existing 0 2015 2016 2017 2018 2019 equity-accounted investments.

Total Australia South Africa Rest of Africa United Kingdom In aggregate, cash balances decreased by R40 million during the year with local and foreign cash balances amounting to R1,5 billion and R4,5 billion respectively.

OPERATING PROFIT Total operating profit before non-trading items declined by 46% to R561 million compared to R1,0 billion in the previous year, due to the FY2019 cash flow movement (Rm) losses provided for on WRU in the first half of the financial year which also contributed to the reduction in the operating margin of the 8 000 group from 3% to 1,4%. The operating margin was further hampered by lower margins from both the Building and civil engineering and Roads and earthworks divisions due to market conditions in Africa and additional costs incurred to complete projects in Mozambique and 7 500 Guinea. The UK operations returned an operating profit of R228 million at an operating margin of 4,0%.

For information on the performance of the respective business units, refer to pages 58 to 75. 7 000

Despite contributing only 33% of the group’s revenue, the combined African business consistently remains the largest contributor toward 6 500 total operating profit generating R668 million in the current year compared to R710 million in FY2018. In Australia, operating profitability has not mirrored the strong top-line growth achieved over recent years. While the impact of the losses recognised on the WRU project 6 000 resulted in a significant operating loss of R335 million from the region, it is important to note that the full anticipated extent of the losses over the life of the contract have been recognised in the current reporting period. In addition, revenue growth has intentionally been 5 500 restricted over the last two years in order to stabilise earnings through improved project execution. The contribution of R228 million in operating profit from the UK operations this year was exceptionally positive. 5 000 Cash Operating Working Net Taxation Dividends Net cash Net cash Foreign Cash Cash and cash profit capital finance paid paid flow from flow from currency acquired and cash equivalents adjusted for changes income investing financing translation equivalents at the non-cash activities activities effect at the end beginning items of the year of the year

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MESSAGE FROM THE CHIEF FINANCIAL OFFICER CONTINUED

Net finance income of R183 million (FY2018: R168 million) increased by 9% year on year representing 25% of net profit before tax, up from EARNINGS AND RETURN ON CAPITAL 14% in the prior year due to the lower operating profit delivered. Earnings per share decreased by 39% from 1 534 cents per share at 30 June 2018 to 939 cents per share at 30 June 2019 and headline earnings per share decreased by 34% from 1 415 cents per share to 932 cents per share. Headline earnings for the year totalled R495 million (FY2018: R752 million), with the only significant adjustment being R6 million in respect of the profit on sale of property, plant and equipment Net finance income versus net cash (Rm) and the related non-controlling interest and tax consequences.

7 000 400 5 877 Headline earnings per share (cents) 6 000 5 668 5 759 350 5 272 300 1 800 5 000 250 1 600 4 000 3 743 1 415 1 400 1 343 1 309 200

Net cash 3 000 1 200 1 085 150 932 2 000 income finance Net 1 000 100 800 1 000 50 600 0 0 2015 2016 2017 2018 2019 400 200 Net cash* Net ﬁnance income 0 2015 2016 2017 2018 2019 * Cash and cash equivalents less interest-bearing debt. HEPS

Consistent profitability, effective contract management, low levels of debt and responsible cash management and treasury practices continue to support high levels of cash resources within the group. This has afforded the group the flexibility to expand into new markets, RECONCILIATION OF HEADLINE EARNINGS FOR THE YEAR ENDED 30 JUNE unlock projects by providing mezzanine financing to select clients, acquire equity stakes in property developments and generally weather challenging market conditions often characterised by extended or delayed payment terms. Audited Audited R’000 2019 2018

INCOME TAX EXPENSE AND TAXATION BALANCES Attributable earnings from continued operations 498 528 815 872 Income tax expense of R199 million (FY2018: R351 million) decreased by 43% in line with the decline in profit before tax, while the Adjusted for effective tax rate of 26,4% was lower than the prior year rate of 29,3% largely due to lower corporate tax rate of 19% in the UK. Gain on loss of control of subsidiary – (5 092) Rm 2019 2018 Loss on deemed disposal of equity-accounted investment – 57 544 Gain on bargain purchase of subsidiary – (101 675) Net deferred tax asset 730 640 Profit from the disposal of property, plant and equipment (5 607) (18 996) Net current tax asset 152 105 Non-controlling interest in the above transactions 826 645 Tax effect of above transactions 1 460 5 339 The increase in the net deferred tax asset relates to an amount of R40 million recognised in respect the adoption of new IFRS standards and Equity-accounted investments: an increase in timing differences due to the provision recognised on the WRU project. The balance consists of tax losses of R221 million Profit from the disposal of property, plant and equipment (75) (3 223) (FY2018: R276 million) available for set-off against future taxable income and timing differences of R508 million (FY2018: R364 million). Impairment of investments – 1 097 Tax effect of above transactions 21 683 The current tax balance consists of foreign tax credits of R48 million (FY2018: R81 million), taxation refundable of R119 million (FY2018: R35 million) and a tax liability of R15 million (FY2018: R11 million). Headline earnings from continued operations 495 153 752 194

Tax compliance is becoming increasingly onerous across all jurisdictions in which the group operates with extensive new reporting requirements being implemented by tax authorities. WBHO adopts a practical and ethical tax structure, employing both dedicated internal tax professionals as well as making use of suitable specialist tax consultants to ensure the group adheres to its tax obligations across all international tax jurisdictions.

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MESSAGE FROM THE CHIEF FINANCIAL OFFICER CONTINUED

The table below sets out the different types and amount of investments undertaken by the group, as well as the profitability earned during Return on capital employed (%) the financial year: Share of after-tax 25 22,7 22,3 profit/(loss) (Rm) Investment 19,8 20 Effective and loans 30 June 30 June 18,0 Entity Industry Country % (Rm) 2019 2018

15 Construction 12,4 Edwin Construction Road and civil construction South Africa 49 95,2 (0,4) 9,6 Byrne Group Building and civil construction United Kingdom – – – (46,8) 10 iKusasa Rail SA Railway maintenance and South Africa 49 10,5 (5,4) (6,7) construction 5 IACS Construction South Africa 28,3 3,8 – –

Concessions 0 Dipalopalo Serviced accommodation South Africa 27,7 58,3 – – 2015 2016 2017 2018 2019 DFMS Joint Venture Serviced accommodation South Africa 14,6 2,4 1,8 4,1 Gigajoule International Gas supply Mozambique 26,6 167,4 18,2 10,9 Gigajoule Power Power Mozambique 13 155,4 33,8 24,1 Return on capital employed (ROCE) decreased below the annual target of 20% to 12,4% (FY2018: 19,8%) due to the impact of the WRU project. Property development Catchu Trading Property development South Africa 50 102,6 – – PROPERTY, PLANT AND EQUIPMENT Caulfield Property development Australia 30 180,6 – – The Glen Sky Garden Property development Australia 20 109,3 – – Property, plant and equipment predominantly comprises the group’s fleet of plant and equipment. The increase this year represents the consolidation of the UK operations and increased expansionary capital expenditure to meet the additional plant requirement for new Property developers mining projects in Botswana. Total capital expenditure amounted to R374 million, of which R223 million was acquired for cash and Russell Homes Limited Residential schemes and United Kingdom 31,7 188,7 4,0 – R156 million was financed. house builder Rm 2019 2018 Expected credit loss (5,3) – Property, plant and equipment 1 937 1 883 Total 1 069,3 52,0 (4,8) Depreciation 283 240 * The Byrne Group was accounted for as a subsidiary from 30 June 2018.

Approved Actual Rm 2020 2019 2018 Income from equity-accounted investments (Rm) Capital expenditure Replacement 232 294 283 80 68,9 Expansion 122 80 33 70 Total 344 374 316 60 52,0 50 46,2 45,7 A reliable and effective fleet is compulsory to meet the productivity targets on mining infrastructure and road projects. The group has 42,0* developed a plant replacement philosophy aligned with demand and activity levels. Further capital expenditure of R344 million has been 40 approved for FY2020 which is broadly in line with previous years. 30 EQUITY-ACCOUNTED INVESTMENTS 20 The group utilises its financial strength to support property developments, develop engineering, procurement and construction projects 10 and invest in concession projects in order to unlock construction opportunities for its operations, while at the same time creating higher-margin income streams. 0 2015 2016 2017 2018 2019

Investments in concession projects create annuity income annually for the group while returns from property investments are realised only * Excluding losses of R47 million in respect of the Byrne Group which became a subsidiary on 30 June 2018. after construction of the development and transfer of the properties has been completed.

In the case of Edwin Construction and iKusasa Rail SA which are specialist construction companies, the group has partnered with black individuals and businesses, providing construction expertise and financial support in order to develop the growth of these businesses while at the same time accessing new markets.

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MESSAGE FROM THE CHIEF FINANCIAL OFFICER CONTINUED

Edwin Construction experienced a difficult year as a large road project was delayed by the client and additional phases of an CONTRACT ASSETS AND LIABILITIES infrastructure project in the Free State were suspended. In addition, the provincial road market offered limited other opportunities during Rm 2019 2018 the year. The business has struggled to secure opportunities in new markets and as a result incurred significant retrenchment costs. One key project has recently been awarded which should support activity levels in FY2020. Contract assets 1 423 1 816 Contract liabilities 2 206 2 338 The local rail market remained subdued with iKusasa Rail SA having executed insufficient work to meet overhead expenditure. The award of a number of submitted tenders are necessary for the business to be able to return to profitability. Contract assets relate to work executed that is yet to be certified. This arises where there is a timing difference between the execution The operational phase of the serviced accommodation concession for Statistics South Africa continued to deliver profits during the and certification of the works, for example, where there are contractual milestones to be met or in the event of unresolved claims between current year providing an after tax return of 15,5%. the parties.

The Matola Gas Company which sells and distributes gas in Mozambique and Gigajoule Power, a concession company supplying The decrease in contract assets of R394 million was predominantly due to resolution of the delayed certification issues on the WRU electricity generated from a gas-fired power station, in which Gigajoule International is a shareholder, both continue to perform well within project. The majority of the contract assets balance, amounting to R542 million, lies within the Infrastructure business in Australia as the their respective markets delivering combined after-tax profits to the group of R52 million. The group achieved an after-tax return of 16,5% resolution of variations and claims in the Australian infrastructure market can be extremely lengthy. on its investment in Gigajoule International. Where payment is received in respect of construction work yet to be performed, the revenue attributable thereto is not recognised but Catchu Trading (Trilogy) is a residential development in Tshwane in which WBHO holds 50% of the equity. The construction contract for accounted for as a contract liability. This arises where advance payments are received from clients or contractual cash flows are agree phase 1 and the construction of the basement for phase 2 are nearing completion. Negotiations for the further development of phase 2 are upon that do not align with the execution of the works. in progress with construction expected to begin during FY2020. The development profit for phase 1 is expected to materialise in FY2020. ACQUISITIONS AND CHANGES IN NON-CONTROLLING INTERESTS In Australia, construction of stage 1 of Precinct 2 of the Caulfield development was completed in August 2019 with the settlement of In July 2018, the group acquired a 60% controlling interest in Russells Limited and a 31,7% interest in Russell Homes Limited, both apartment sales expected in FY2020. Stage 2 of Precinct 2 is currently being developed, with a development agreement now signed with companies located in the UK. The consideration paid amounts to £32,6 million and £3,25 million respectively. Full details of the a potential owner seeking to own to rent. In addition, construction of The Glen Sky Garden above the Glen Shopping Centre in Melbourne transaction are included in note 30 of the annual financial statements. has begun. Construction of the development is due for completion in April 2021 with development returns expected in FY2022. Rm Description % change Consideration In July 2018, the group acquired a 31,7% interest in Russell Homes Limited, a scheme developer and house builder in the UK for R56,4 million. A loan to the business of R128 million has been recognised on consolidation of Russells Limited, the construction Russells Limited Put option 10,0 88 business that has supported the funding of certain schemes. Probuild Constructions (Aust.) Pty Ltd Share buy-back 2,0 43 Probuild Constructions (Aust.) Pty Ltd Acquisition 0,8 16 This year Russell Homes reported revenue of £21,4 million delivering a pre-tax profit of £846 thousand with residential sales across three schemes consistent throughout the year. In February 2019, the minority shareholders in Russells Limited exercised their first put option for a consideration of £4,8 million. Looking ahead, Russell Homes has a number of development schemes under construction, namely Cedar Gardens, Bower Brook The group’s interest in the business increased from 60% to 70% as a result. Gardens, Littleborough and Oldham. The recent outline planning approval received for 265 properties on the Oldham site was an exciting development in the second half of the year. In terms of the shareholder agreements, Probuild reacquired a 2,0% interest from minority shareholders during the year at a cost AU$4,1 million, while WBHO Australia acquired 0,8% at a cost of AU$1,5 million. The combined effect of these transactions resulted in During the year the group received dividends of R17,8 million and R3,7 million from Gigajoule International and DFMS respectively and an increase in the group’s interest in Probuild of 3,2% from 84,6% to 87,8%. accrued for a dividend of R0,8 million in respect of Russell Homes. Included in finance income is interest of R10,6 million received on the loan to the Dipalopalo Concession and R5,6 million received on the loan from Russells Limited to Russell Homes Limited. PROVISIONS, LONG-TERM LIABILITIES AND CONTINGENT LIABILITIES Rm 2019 2018 LONG-TERM RECEIVABLES Rm 2019 2018 Provisions 2 415 1 764

Mezzanine financing arrangements 155 150 Long-term liabilities 295 324 Other long-term receivables 238 273 Less: current portion (102) (154)

393 423 193 170 Less: Expected credit loss allowance (2) – The increase in provisions reflects the recognition of the provision for future anticipated costs on the WRU project as well as the Current portion (45) (50) consolidation of the UK operations.

Total 346 373 Long-term liabilities consist of R154 million (FY2018: R136 million) in respect of capitalised finance lease agreements over plant and equipment and R139 million (FY2018: R127 million) in respect of the present value of the remaining Settlement Agreement liability In addition to taking an equity interest in the investments described above, the group also provides mezzanine financing to key clients including capitalised interest. The third payment of R21 million was made on 1 July 2019 reducing the balance to R118 million. where opportunities exist to unlock developments and procure work. Interest is levied at rates higher than those available from financial Financial guarantees issued to third parties amount to R8,9 billion (FY2018: 10,7 billion). institutions and acceptable security is obtained. A new facility of R62 million was approved during the year in respect of a residential development in Cape Town. R5 million was advanced in the current year and the group will also participate in the development profit The group has guarantee facilities of R15,1 billion with various financial institutions of which R8,9 billion has been utilised, leaving an without having invested any equity. unutilised amount of R6,2 billion which is sufficient to cater for future growth prospects. Parent company guarantees to the value of R812 million have also been issued. Other long-term receivables include loans to employees for shares of R152 million (FY2018: R147 million), which are secured by the shares issued, bear interest at variable rates and are repayable between five and 10 years. A further R24 million relates to consideration receivable outstanding in respect of the loss of control of Edwin Construction in FY2017. Consideration receivable of R40 million in respect of the disposal of 3Q Mahuma Concrete (Pty) Ltd, also in FY2017, was settled during the year.

90 WBHO Integrated Report 2019 WBHO Integrated Report 2019 91 MESSAGE FROM THE CHIEF FINANCIAL OFFICER CONTINUED OXYGEN TOWERS OUTLOOK We anticipate market conditions in South Africa to remain subdued over the short term. Nonetheless, our order book is sufficiently A prestigious private residence secured to ride out this period in anticipation of a number of recently announced large-scale public infrastructure projects. In the rest of in Manchester consisting of three Africa, attention has shifted toward southern and eastern Africa in pursuit of a strong pipeline of potential new work. towers, including apartments, The Australian order book also remains healthy, however, from a financial perspective, we will be primarily focused on managing the penthouses and ﬁ tness facilities impact of the WRU project on cash flows and maintain sufficient balance sheet strength to continue to procure work.

In the UK, we are carefully following developments related to Brexit and aligning the Byrne Group with those markets offering opportunities. New civil engineering projects in the nuclear and waste management sectors were secured during the year. The PROJECT VALUE Manchester market remains strong with Russells well positioned as the preferred contractor in the region.

APPRECIATION £85 million I would like to conclude by thanking the executive team and my colleagues in the finance team for their support during the year and a further special thanks to the members of the Audit committee for their guidance. PROJECT DURATION

Charles Henwood 36 months Chief Financial Officer

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MESSAGE FROM THE PROTECTING LEAD VALUE INDEPENDENT

95 Message from the Lead independent director DIRECTOR 96 Board of Directors 98 Governance report 101 Audit committee report 104 Remuneration committee report ROSS GARDINER 105 Remuneration and implementation report

The board promotes strong principles of integrity within WBHO. We believe that sustained value creation is built on ethical leadership and that an ethical culture is the foundation upon which excellence is established in every part of the business.

Inappropriate corporate behaviour continues to make headlines, management of the business. The ability to do so is significantly contributing to weakening public trust in all companies. WBHO has enhanced by having a skilled and diverse Board which a zero tolerance for corruption. We actively promote our possesses a breadth of industry experience, supported by an whistleblowing lines to staff and have acted decisively where we appropriate mix of gender, race, experience and perspectives. have identified wrongdoing. This philosophy carries through to our This diversity encourages robust debate at Board and committee client and supplier relationships. The trust of stakeholders takes level to ensure that appropriate and effective judgement and time to build, but can be lost in an instant. We are all focused on guidance are provided to management. demonstrating that we are a business that truly lives ethically. As a Board, we recognise that corporate governance must be The board acknowledges and embraces the responsibilities appropriate and relevant to the size, nature and complexity of its bestowed upon it by the Companies Act and King IV and is operations, yet should promote robust practices within the fundamentally responsible for ensuring that strategy, risk, context of economic performance. I am comfortable that the performance and sustainability of the group are inseparable. board and its committees have successfully discharged their Corporate governance processes also protect executives and duties and responsibilities this year in accordance with their charters and mandate. employees in fulfilling their duties, and good corporate governance instils stakeholder confidence in the organisation.

The board provides continuous oversight of significant matters, acting as an independent check and balance for the executive Ross Gardiner management team, whose main responsibility remains the Lead independent director

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EXECUTIVE BOARD COMPOSITION

Executive Non-executive BOARD OF directors directors

DIRECTORS BSc BA (Hons)

MIKE WYLIE (69) LOUWTJIE NEL (58) CHARLES HENWOOD (54) Executive Chairman Chief Executive Officer Chief Financial Officer MBA Hdip (Tax)

WBHO recognises that accountability Qualifications: Pr Eng, BSc (Eng), BCom (Hons) Qualifications: BSc (Eng) Qualifications: BCom, BCompt (Hons), CA(SA) and transparency are fundamental to Board member since: 11 July 1994 Board member since: 1 August 2008 Board member since: 9 November 2011 investor trust and that good Skills, expertise and experience: Engineering Skills, expertise and experience: BCom (Hons) CA (SA) and finance Engineering Skills, expertise and experience: Finance governance contributes to value Industry experience: 45 years Industry experience: 31 years Industry experience: 30 years creation in the short, medium and Other significant directorships: WBHO Group Other significant directorships: WBHO Other significant directorships: WBHO long term. A summarised account of companies Group companies Group companies the work done by the board during the 2019 financial year follows, and describes how the board has applied NON-EXECUTIVE DEMOGRAPHICS (%) principles of good governance in order to enable and support the Demographics (%) company’s value creation process. 13 Refer to the separately published 37% ESG report for the detailed governance report 37 OF THE BOARD MEMBERS ARE BLACK BOARD OF DIRECTORS 2019 The WBHO Board of directors is responsible for developing the 75% strategy of the organisation with management. It retains full and ROSS GARDINER (56) COBUS BESTER (59) HATLA NTENE (64) OF THE BOARD Lead independent non-executive Independent non-executive Independent non-executive MEMBERS ARE MALE effective control of the company and 50 is responsible for the implementation Qualifications: BSc (Hons) (Mining and Qualifications: BCom (Acc) Hons, CA(SA) Qualifications: BSc (Surv), Dip.Con. Econ, of the strategy of the group. Petroleum) Board member since: 1 November 2017 Dip.Civ.Eng, Pr.CPM, PRQS, PMAQS BlackBlack White White Non-RSA Non-RSA Board member since: 23 January 2014 Skills, expertise and experience: Finance, Board member since: 1 November 2017 25% BOARD COMPOSITION Skills, expertise and experience: Mining taxation, governance and risk management Skills, expertise and experience: Quantity OF THE BOARD The board comprises the appropriate and risk management Industry experience: 32 years surveyor and governance MEMBERS ARE FEMALE balance of knowledge, skills, Industry experience: 35 years Other significant directorships: Bombela Industry experience: 30 years Other significant directorships: New Africa Operating Company (Pty) Ltd Other significant directorships: Calgro M3 experience, diversity and Mining Fund 3 (Pty) Ltd Holdings (Pty) Ltd, The Don Group Ltd, Mvua independence to objectively and Property Partners (Pty) Ltd, Aecom South EXECUTIVE DIRECTOR TENURE ON THE BOARD effectively discharge its governance Africa Group Holdings (Pty) Ltd role and responsibilities. The diversity in its membership across various attributes creates value by promoting better decision-making and effective 8 years 15 years 25 years governance. SHORTEST AVERAGE LONGEST LEADERSHIP ROLES AND FUNCTIONS The role of the Chairman is distinct KAREN FORBAY (49) SAVANNAH MAZIYA (51) NON-EXECUTIVE DIRECTOR TENURE ON THE BOARD and separate from that of the Chief Independent non-executive Independent non-executive Executive Officer ensuring that Qualifications: BCom, BCom (Hons) Qualifications: BA (Hons), MBA appropriate balances of power and Economics and Finance, BCom (Hons) Board member since: 25 October 2006 authority exist on the board. The board Accounting, Hdip (Tax), Post Graduate Skills, expertise and experience: Finance is led by an Executive Chairman and Diploma (Leadership). 2 years 3 years 6 years and mining therefore, in compliance with JSE Board member since: 1 November 2017 Industry experience: 15 years SHORTEST AVERAGE LONGEST Listings Requirements and King IV, a Skills, expertise and experience: Other significant directorships: Bunengi Governance, finance and taxation lead independent director has been Holdings (Pty) Ltd, Sibanye-Stillwater Ltd, Industry experience: 2 years Rand Water, WSP Group Africa, Parsons appointed. Other significant directorships: KMF and Brinckerhoff Africa (Pty) Ltd Associates (Pty) Ltd 96 WBHO Integrated Report 2019 WBHO Integrated Report 2019 97 UNDERSTANDING WBHO I CREATING VALUE I DELIVERING VALUE I PROTECTING VALUE

GOVERNANCE REPORT

GOVERNANCE FRAMEWORK BOARD EFFECTIVENESS WBHO’s governance framework, as set out below, enables the board to maintain effective control while delegating authority through its Through the board, WBHO endorses, and is committed to, the recommendations of the King Report on Corporate Governance for Board committees and Executive committee. South Africa (King IVTM); the dictates of the Companies Act of South Africa, No 71 of 2008; and the JSE Listings Requirements. WBHO recognises that being a ‘good corporate citizen’ requires the organisation to deliberate and act with fairness, responsibility, transparency and accountability.

BOARD The King IVTM application register is available online at www.wbho.co.za

Responsible for strategic leadership and guidance and ensuring that the company remains a robust, The board has also established five standing committees through which it executes some of its duties namely: Audit, Risk, Social and successful business, responsive to stakeholders and accountable to shareholders. ethics, Remuneration and the Nomination committee. Each committee has adopted an appropriate formal terms of reference and each committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference for the year. The Audit committee and Remuneration committee reports are included in this report, for more on the membership, attendance at meetings, key focus areas in the BOARD COMMITTEE year and planned focus areas for FY2020 for the remaining committees, refer to the detailed governance report included in the separately published ESG report.

AUDIT RISK SOCIAL REMUNERATION NOMINATION The table below summarises the key activities undertaken by the board in the year as well as planned focus areas for FY2020. COMMITTEE COMMITTEE AND ETHICS COMMITTEE COMMITTEE COMMITTEE Specific planned focus areas for Oversight of Oversight of the risk Oversight of all Oversight of Desired outcomes Activities in the year FY2020 financial risk management Oversight of good remuneration identifying and Leadership, • An ethical and effective • Conducted a review of relevant Board • Review the Code of Conduct and management and framework and corporate policies and sourcing ethics and leadership, resulting in the charter, committee terms of ensuring the combined citizenship, appropriately skilled Delegation of Authority Framework practices corporate achievement of strategic references and policies including integrity of financial assurance reporting encompassing directors, ensuring citizenship objectives and positive division of responsibility, reporting ethical, legal, social that an evaluation outcomes independence of non-executive and environmental process is • Establish and monitor an directors governance implemented across ethical culture • Approved and implemented a supplier • Maintain WBHO’s responsible Code of Conduct policy all subcommittees corporate citizenship status • Enhanced the existing provisions for and main Board declaring conflicts of interest, with directors particular focus on the tender process • Displayed independent and effective judgement on material matters

Strategy, • Realisation of the WBHO’s • Offsite workshop to debate, refine, • Monitor construction delivery on the performance core purpose and values and approve the strategy WRU project in Australia, as well as CEO and reporting through its strategy • Monitored the performance and any further variations and potential • A well-considered strategy, implementation of the approved claims against professional designers taking into account the strategy EXECUTIVE COMMITTEE operating environment, risks • Reviewed and interrogated the and opportunities, with the strategic direction and objectives in Responsible for implementing the strategy of the group and assisting the CEO in managing the day-to-day operations. intent to deliver sustained relation to risks, opportunities, long-term value In addition, mandates are given to the committees below to oversee specific areas of importance on behalf of the resources and relationships at the • Appropriate alignment and annual Board strategy session Executive committee (Exco). monitoring of key performance • Approved key performance metrics measures and targets for and targets for FY2019 assessing the achievement of INFORMATION CREDIT TRANSFORMATION SKILLS VRP RISK • Reviewed detailed divisional business the strategic objectives .reports at half year and year end to TECHNOLOGY COMMITTEE COMMITTEE DEVELOPMENT COMMITTEE • Reliable external reports that highlight any emerging issues and risks STEERING COMMITTEE enable stakeholders to make • Approved the FY2019 budgets Responsible for Responsible for Responsible to COMMITTEE an informed assessment of the of the divisions assessing all implementing initiatives Responsible for focus on the company’s performance • Monitored the integration of the Responsible for capital projects to achieve the strategic ensuring the mechanisms of the United Kingdom (Byrne Group, ensuring effective, against financial, transformation training and skills VRP in meeting its Russells Limited and Russells Homes) appropriate IT technical and objectives of the group development targets acquisitions • Approved the 2019 integrated report, governance and strategic objectives programmes of the annual financial statements, financial support group are results and results announcements coordinated and • Conducted performance evaluation of effective the Chief Executive Officer • Reviewed solvency, liquidity and going-concern status, and agreed dividend payments

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GOVERNANCE REPORT GOVERNANCE REPORT CONTINUED CONTINUED AUDIT COMMITTEE MESSAGE FROM THE AUDIT COMMITTEE CHAIR COBUS BESTER REPORT

Specific planned focus areas for Desired outcomes Activities in the year FY2020

Risk, oversight • Strengthened diversity in • No new independent non-executive • Develop a privacy policy in and compliance thought, experience and directors appointed in the year accordance with Protection of Dear shareholders, The Audit committee’s primary purpose is to provide financial independence of the board • Approved a formal CEO and Chairman Personal Information Act and its committees I am pleased to present the Audit committee Report for the 2019 oversight on behalf of the board in compliance with the succession plan • Consider the compliance or • Continued improvement in the • Considered the independent board financial year. We are operating in uncertain times, where corporate statutory duties and responsibilities in terms of the Companies legislative risk matrix for each performance and evaluation report and implemented governance and accounting scandals continue to be regularly Act, JSE Listings Requirements and the King Codes. country where WBHO has a effectiveness of the board action plans reported upon in local and international media. As a committee we physical office • Achieved gender and racial • Monitored progress made in terms of remain resolute to ensure that the financial processes and controls AUDIT COMMITTEE RESPONSIBILITIES diversity targets at Board level the gender diversity policy of the group are sufficiently robust to ensure the integrity of • Substantial compliance with • Considered the recommendations of The committee has adopted a formal terms of reference and the spirit and principles of King IVTM WBHO’s financial reporting. is responsible for: King IVTM • Performing its statutory duties as prescribed by the The report aims to provide details on how the committee satisfied Companies Act, with specific reference to the audit quality, Remuneration • Fair, responsible and • Reviewed WBHO’s remuneration • Ongoing review of remuneration its various statutory obligations during the year, how it assessed auditor independence and financial policies and reporting transparent remuneration policy and implementation plan in line structures to industry norms as well the effectiveness of the internal auditors and the appointment, practices with WBHO’s strategy concerns as performance independence and effectiveness of the external auditors. The • Alignment between executive • Paid specific attention to the • Considering the financial performance, financial position report also reflects on significant matters that arose in the year director and stakeholder performance measures of the short- and cash flow of the group on a quarterly basis, including and long-term incentive scheme and how the committee addressed those. interests solvency and liquidity • Determined the overall value of the short-term incentive pool with the In the year, we paid particular attention to various accounting and • Overseeing, assessing and approving the internal and necessary accrual raised by financial IFRS technical matters in respect of the financial statements, IT external audit functions with respect to appointment, work year end governance and conducted a corporate governance review. While plans, quality of work executed, matters arising from the Stakeholder • Stakeholder-inclusive • Identified material stakeholders and • Ongoing monitoring of stakeholder the committee will continue to operate within its mandate and work performed and independence relations approach in the execution of oversaw formulation of stakeholder engagement plans ensure that meetings address all regular matters reserved for its • Reviewing the expertise, resources and experience of the governance roles and engagement strategies consideration, the following focus areas will be top of its agenda finance function and evaluating the the expertise and responsibilities • Oversaw facilitation by management in FY2020: experience of the Chief Financial Officer • Reasonable needs, interests of regular and pertinent • A strong focus on financial performance, cash management • In conjunction with the Social and ethics and Risk and expectations of communication with shareholders and in particular working capital management more generally, stakeholders, balanced in the committees, considering the risk management framework as part of a greater treasury enhancement strategy best interests of the company and policy as they relate to financial reporting risks, over time • Further improvement to the internal control environment and internal financial controls, fraud and non-compliance risk the culture in this regard by the businesses as well as IT risks in relation to financial reporting as well Corporate • Appropriate governance • Approved the appointment of the new • Review the corporate governance • Review of information technology governance governance structures and processes to Independent non-executive directors framework and Delegation of Authority as the adequacy of the risk management process ensure effective control of the policy. policy by the board In closing, I would like to thank my fellow committee members • Overseeing the combined assurance framework and plan, company • Considered the independent • Review and monitor remedial action as their contribution and their ongoing support at committee including the quality of and reporting by assurance assessment of long tenure directors part of the IT Governance Framework meetings. I would also like to express my gratitude to our Chief services within the group in order to ensure the integrity of • Achieved voluntary diversity targets at Financial Officer, Charles Henwood, and his finance team for their information for internal and stakeholder decision-making, Board level and continued as well as the adequacy and effectiveness of internal ongoing commitment to delivering sound financial management improvements in the performance and controls effectiveness of the board and reporting every day. • Recommending to the board for approval the interim and annual financial statements as well as the integrated report

The committee confirms that it has discharged its Cobus Bester responsibilities as mandated by the board, its statutory and Audit committee Chair governance duties in compliance with the Companies Act, the JSE Listings Requirements and King IVTM.

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AUDIT COMMITTEE REPORT CONTINUED

COMPOSITION AND ATTENDANCE AT by an appropriate approval framework. No significant CORPORATE GOVERNANCE REVIEW The committee considered the appropriateness of MEETINGS non-audit-related services were provided during the year. The committee considered a report on WBHO’s compliance with management’s position paper, models and the assumptions • Held separate meetings with the external auditor without King IVTM. The committee noted the progress in addressing the applied in the estimation of future costs and revenue. The The committee members comprised of independent non- management being present where no matters of concern majority of gaps identified in previous periods. committee is satisfied that the methodology and judgements executive directors. All members have the requisite business, were raised. applied by management are adequate to determine the extent financial and leadership skills for the position. • Received and reviewed external audit reports for the year COMMENTS ON AUDIT MATTERS and value of anticipated future losses on the project. Meeting pertaining to the annual financial statements for the year With respect to key audit matters, addressed by BDO in their Composition Appointed attendance ended 30 June 2019. An unqualified audit opinion was external audit report, the committee provided the following EXPECTED CREDIT LOSSES expressed. oversight: With effect from 1 July 2018, the group adopted IFRS 9: Financial Cobus Bester 1 November 2017 4/4 • Assessed the quality of the external audit: Instruments using the cumulative method where the impact of (Chairman) – Enquired from management on their overall experience of the RECOGNITION OF CONTRACT REVENUE, MARGIN IFRS 9 on the opening balances of relevant financial assets was Karen Forbay 1 November 2017 4/4 external audit quality. No significant matters were brought to AND RELATED RECEIVABLES AND LIABILITIES adjusted against opening distributable reserves. The group the attention of the committee. Revenue and margin recognition on construction contracts recognises an expected credit losses (ECL) for financial assets Ross Gardiner 28 April 2014 4/4 – Reviewed reports submitted and quality of engagement with requires significant judgement to determine current and future that are measured at amortised cost. external auditors at committee meetings. Savannah Maziya 29 August 2017 4/4 financial performance. The committee assessed the – Overall, the Audit committee is satisfied with the quality of the methodology and judgement applied by management, focusing The committee assessed the methodology and judgement applied external audit for the year. Refer to page 96 for detailed qualifications and experience of on the measurement of progress. The committee discussed the by management, focusing on the computation of the ECL based • Considered the tenure of BDO South Africa Incorporated of committee members. on the probability of default and loss given default (which 33 years as the external auditors of the group as well as the matter with the external auditors to understand their related audit represents the quantum and value of losses arising from default), tenure of one year of Mr J Schoeman as the designated lead procedures and evidence to support the judgements. Other regular attendees at the meeting include: adjusted for forward-looking considerations. The committee partner and the potential impact thereof on the independence • Chief Executive Officer The committee is satisfied that the methodology and judgements discussed the matter with the external auditors to understand their of the firm. • Chief Financial Officer applied by management are in accordance with IFRS. related audit procedures and evidence to support the judgements. • Finance • The matter of audit firm rotation will be considered in FY2020 • Information technology and the committee will make a recommendation in this regard VALUATION OF GOODWILL The committee is satisfied that the methodology and judgements for shareholder consideration and voting at the FY2020 AGM. • Internal auditors During the year WBHO concluded the acquisition of Russells applied by management are in accordance with IFRS 9. • After review of information provided by BDO as required per • External auditors Limited and recognised goodwill thereon. By its nature, testing paragraph 22.15(h) of the JSE Listings Requirements and in for goodwill impairment involves significant judgement. ANNUAL CONFIRMATIONS Designated advisors may from time to time be invited to consultation with management, agreed to recommend to the The principal matters attended to by the committee during the meetings. The Chairman met separately with management and board for approval at the annual general meeting the The committee considered the appropriateness of valuation year included: the external auditors prior to each meeting. During the year, reappointment of BDO South Africa Incorporated as the external models and key assumptions applied in the assessment of closed sessions were also held for committee members only, auditors for the 2020 financial-year and confirm that goodwill for FY2019. ANNUAL FINANCIAL STATEMENTS AND with management as well as internal and external auditors. Mr J Schoeman is not required to rotate but be confirmed INTEGRATED REPORT as the designated lead partner for the forthcoming year. The committee is satisfied that the models and assumptions The committee is satisfied that the financial reporting procedures applied were appropriate and consistently applied in the INTERNAL AUDIT Beyond its normal duties, as briefly described above, the Audit are operating appropriately. The committee reviewed and assessment of the impairment of goodwill. No impairment charge The group outsources its internal function to Deloitte, both in Africa committee specifically focused on the following matters in FY2019: considered the annual financial statements and the integrated was recognised in the year. and Australia. Then internal audit function in the United Kingdom report and has recommended them for approval by the board. (UK) is currently managed in-house but will be formalised in the ACCOUNTING AND IFRS TECHNICAL COMPLETENESS AND ADEQUACY OF CONTRACT The committee, in the finalisation of the annual financial FY2020 year and a UK Audit committee established. MATTERS IN RESPECT OF THE AND OTHER PROVISIONS statements, also considered matters emanating from the JSE’s During the year the committee: FINANCIAL STATEMENTS Construction companies are exposed to various claims, including proactive monitoring process in respect of accounting policies legal disputes and other construction-related provisions • Confirmed the independence of the internal auditor Various matters were considered in this regard, including the and financial reporting. throughout and post the construction phase. Determining the • Approved the fees to be paid to the internal auditor implementation of IFRS 15: Revenue from Contracts with levels of required provisions requires judgement, taking into SOLVENCY AND LIQUIDITY • Reviewed the internal audit plan for the year Customers, IFRS 9: Financial Instruments as well as the • Held regular feedback meetings with the Chief Audit Executive account past experiences and known current factors. The committee reviewed quarterly assessments of the accounting for onerous contracts, specifically the Western Roads • Reviewed all medium and high risk findings identified and going-concern premise of the group, prepared by management, Upgrade (WRU) project in Australia. reported upon within internal audit reports The committee considered management’s representation of before recommending to the board that the company and the current and potential claims related to construction activities. The Significant focus was given to these matters by the committee to group will be a going concern for the foreseeable future. committee also considered the disclosure of significant known and EXTERNAL AUDITORS ensure appropriate disclosure. These matters are more fully potential claims against the group. The committee is satisfied that In respect of the external auditor the committee: described in the related notes in the annual financial statements. EVALUATION OF THE EXPERTISE AND ADEQUACY OF the provisions are adequate. • Satisfied itself that the external auditor was independent as THE CHIEF FINANCIAL OFFICER AND THE FINANCE FUNCTION set out in section 94(8) of the Companies Act. The IT GOVERNANCE ONEROUS CONTRACTS independence of the external auditors is regularly reviewed as Considered and satisfied itself of the appropriateness of the IT governance is an important focus of the committee. In this The group was significantly impacted by the recognition of a prescribed by the Independent Regulatory Board of Auditors expertise and adequacy of resources within the finance function regard the committee considered information security, the IT material provision in respect of the WRU project. An incorrect (IRBA). The requisite assurance was provided by the external of the group and of the Chief Financial Officer. control landscape, enterprise architecture and the quality of auditor to support and demonstrate its claim to independence. interpretation by the design consultants of the technical operations and IT support to the business. The committee also • Determined the fees to be paid to the external auditor and the specifications resulted in the underestimation of the physical EFFECTIVENESS OF INTERNAL CONTROLS obtained an external, independent assessment of the IT maturity terms of engagement as well as the nature and extent of any works necessary to meet the output specifications of the Having reviewed and considered the combined assurance model level within the organisation against key principles included within non-audit fees that the external auditor provides to the group. contract and the recognition of a provision for the anticipated and related assurance obtained from the three lines of defence, the COBIT framework. Implementing the recommendations from • Reviewed and approved the external audit plan, including the future costs to execute those additional works. the committee recommended to the board that it issues a proposed scope and determined the nature and scope of the assessment will require further focus in FY2020. statement confirming the adequacy of the internal control non-audit services. All non-audit related services are governed environment of the group.

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GOVERNANCE REPORT CONTINUED REMUNERATION REMUNERATION AND MESSAGE FROM THE REMUNERATION COMMITTEE CHAIR SAVANNAH MAZIYA COMMITTEE REPORT IMPLEMENTATION REPORT

REMUNERATION GOVERNANCE REMUNERATION PHILOSOPHY AND POLICY Dear shareholders, The Remuneration committee (Remco) is tasked by the board WBHO’s remuneration philosophy defines how its remuneration practices seek to be fair, responsible, transparent and compliant with WBHO experienced challenging conditions in FY2019 and these to independently approve and oversee the implementation of a legislative requirements within all the jurisdictions in which the group operates. Furthermore it seeks to encourage and reward long-term conditions reinforced the importance of having effective human remuneration policy that will encourage the achievement of the sustainable performance that is aligned to the group’s strategy as well as ensure the achievement of the desired culture across WBHO. resource and remuneration policies. group’s strategy and grow stakeholder value on a sustainable The key elements of the remuneration strategy and policy has been articulated in a remuneration policy. basis. The overarching responsibility of the Remuneration committee is WBHO’s strategy, vision, business model, culture, objectives and targets have been defined. The group’s strategy has been developed by to ensure that the principles of accountability, transparency and RESPONSIBILITIES the executive and senior management teams and approved by the WBHO board. Management is responsible for delivering against this good governance are followed for all remuneration-related The committee has adopted an appropriate formal terms of mandate and managing the business on a day-to-day basis to achieve the stated objectives. Overall, this feeds into the evaluation of matters across WBHO. The committee must ensure that WBHO reference and is responsible to: performance against a set of broadly predetermined metrics that forms part of the remuneration cycle. All employee-related processes has the appropriate remuneration policies and practices in place • Determine, agree and develop the company’s general from recruitment to monitoring performance against agreed metrics have been accordingly aligned. to attract, motivate and retain the right talent, especially at policy on non-executive, executive and senior executive and operational level, and to ensure that there is an management remuneration The remuneration policy recognises that WBHO considers its employees to be the most important factor contributing towards its appropriate link between executive remuneration and the group’s • Ensure that the company remunerates directors and continued success and, through its application, aims to fairly remunerate all employees and reward individual performance in performance against its strategic objectives. The committee executives fairly and responsibly and that disclosures of a way that is able to attract, motivate and retain key personnel. must also annually review the skills profile of the group and its director remuneration is accurate, complete and transparent One of the purposes of the remuneration policy is to align the interests of senior executives with the interests of shareholders and with leadership team as well as undertake annual evaluations of the • Appraise employee reductions and union negotiations the business strategy formulated by the board, with regards to how performance-based rewards are used to drive corporate performance of WBHO’s executive directors and management. MEMBERSHIP performance, in particular. In FY2019, the Remuneration committee specifically focused on: The committee comprises three independent non-executive The group’s remuneration policy, which is available online under the governance section of the company’s website at www.wbho.co.za/ • Implementation of the group’s succession plan with the directors. All members have the requisite business, financial governance, defines the principles to be applied when determining remuneration for employees, including both executive and non-executive appointment of Mr Louwtjie Nel as Chairman and Wolfgang Neff and leadership skills for their positions. There were no packages. The policy aims to align the interests of senior executives with the interests of shareholders and with the business strategy as CEO changes to the committee membership in the year. • The appropriateness of the remuneration policy to support the formulated by the board, particularly with regard to how performance-based rewards are to drive performance. There were no changes to strategic objectives of WBHO the policy during the year. For detailed qualifications and experience of non-executive • Monitoring remuneration practices and reports in line with the committee members see page 96. requirement of the remuneration policy GENDER EQUALITY WBHO is committed to gender equality, and our policy is to pay men and women equally for equivalent roles. • Reviewing the annual remuneration report and the impact as For details of attendance at committee meetings see to disclosed in the integrated report pages 64 to 65 of ESG report. • Remuneration packages and benefits for executive directors ensuring that remuneration packages are effective in driving GUIDING PRINCIPLES WBHO’s strategy and the right behaviour REMUNERATION CONSULTANTS Where appropriate, Remco obtains advice from WBHO’s remuneration philosophy is informed by the following guiding principles: In FY2020, specific attention will be placed on ensuring consistent independent remuneration consultants. The consultants are Guaranteed remuneration Short-term incentives which Long-term incentives which group reporting on remuneration structures across all regions, it employed directly by Remco and engage directly with them packages aligned to a reward high-performing reward both company was recommended that the United Kingdom operation adopt a to ensure independence. During the year, the company performance-oriented philosophy, employees for their performance performance and individual/team/ similar remuneration policy and methodology as applied in South utilised the services of Tribrach Consultants (Pty) Ltd as benchmarked against comparable contribution to the group, project performance. Africa. This would also require the formation of a remuneration independent remuneration consultants in determining the industry packages, and for divisional cluster and division in committee in the United Kingdom reporting to the South African quantum and mix of LTI awards. Remco has reviewed the executive directors and senior which they work based on a management team who in turn will report to the Remuneration targets for short- and long-term incentives for the 2019 managers, set below the median. scorecard of economic, social committee of the holding company. The following are also planned financial year and decided to leave them unadjusted. and environmental targets. to be reviewed and finalised in the FY2020 year: • Review of long-term incentive performance criteria • Appropriate clawback provisions to be included in remuneration policy The committee confirms that the remuneration policy NON-BINDING ADVISORY VOTE ON WBHO’S REMUNERATION POLICY AND We are also conscious of the wage gap, and the ongoing debate has been fully complied with in the current year IMPLEMENTATION REPORT In terms of the JSE Listings Requirements, shareholders are required to cast a non-binding advisory vote on the remuneration policy and on how this should be measured and managed. without any deviation therefrom. We are satisfied the policy achieved its objectives in the year. implementation report as presented in this report. Voting results on our remuneration policy at the FY2016, FY2017 and FY2018 annual general meetings were as follows: APPRECIATION I would like to thank my colleagues on the committee for their Votes Votes Votes assistance this year in delivering on our important responsibilities Remuneration policy for against abstained for progressive remuneration policies and practices. I extend my 21 November 2018 96,55% 3,45% 0,01% thanks also to Louwtjie Nel and his executive team for their 23 November 2017 96,74% 3,26% 0,21% dedication and hard work over the year. 16 November 2016 99,70% 0,30% 0,11%

Should shareholders exercising 25% or more of the voting rights, vote against the remuneration policy and implementation report at the Savannah Maziya upcoming AGM, the group shall extend an invitation to dissenting shareholders in its voting results announcement, to address the reasons Remuneration committee Chair for their vote and indicate the manner and timing of such engagement.

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REMUNERATION REPORT CONTINUED

KEY ELEMENTS OF THE REMUNERATION POLICY

The key elements of WBHO’s remuneration framework and structure which guides payments to all employees are summarised below.

Element Eligibility Implementation Element Eligibility Implementation

TOTAL GUARANTEED PACKAGE (TGP) LONG-TERM INCENTIVES (LTIs) Reflects an individual’s skills, performance, location in relation to place or residence and experience and is benchmarked against The purpose of the LTIs is to retain and reward employees for their contribution toward the creation of shareholder value over the comparable industry packages. long term.

Basic salary Hourly-paid and Share incentive Share incentive salaried employees awards An empowerment share scheme rewarding black individuals with service in excess of Hourly paid Cash-settled Determined annually at the industry bargaining council through negotiations between five years. A fixed number of shares are allocated to employees. The dividends from the employees industry and employee representatives, with increases effective in September of each Akani share allocated shares are utilised to acquire actual shares on the open market which then vest year. scheme after five years. Additionally, a proportion of the scheme allocated shares may vest with Salaried employees Cash-settled Determined annually taking cognisance of inflationary pressures and group and individual employees after five years depending on the share price performance over the period in performance and in most instances includes a 13th cheque. accordance with a predetermined formula.

Executive directors Cash-settled Determined annually, recognising the role and responsibility for the delivery of strategy Senior and middle Full recourse Full recourse and/or share options and prescribed and performance. management shares and/or Issued to select individuals in acknowledgement of their contribution toward the officers: share options performance of the group and to achieve the group’s retention strategies. Both the While taking cognisance of comparable guaranteed executive pay levels within the shares and options have a five-year vesting period. In respect of shares, interest-free industry, the guaranteed pay levels of executive directors are set below the median loans are raised at the time of award and settled at the time of vesting. Dividends level in order to minimise the gaps in salary between executive directors and key senior earned over the vesting period are utilised to reduce the loan. operational management and maintain cohesion within the team. Employee Employee share purchase plan Benefits share purchase In Australia, shares under this scheme are sold to individuals at market value. Loans are All employees Competitive, market-aligned benefits including provident fund contributions, medical plan advanced at statutory interest rates in order to purchase the shares. aid, leave pay, vehicle allowances, subsistence allowances and various other allowances appropriate to an employee’s role and location. A five-year vesting period applies and employees are required to remain in employment in order to retain their shares. The potential for capital growth in the shares is aligned SHORT-TERM INCENTIVES (STIs) (VARIABLE PAY) with the financial performance of the business along with the talent retention objectives. Short-term incentives reward the individual performance of employees taking cognisance of their relevant roles and responsibilities, are assessed annually, approved by the Remco, and payable in November or December of each year. Executive directors, Share incentive Share incentive prescribed officers awards Aligned with the performance of the group and benchmarked against comparable listed Hourly-paid employee Cash-settled Bonuses are determined at industry bargaining council levels through a process of and senior entities on the Johannesburg Securities Exchange. negotiations between industry and employee representatives. management The components of the WBHO Share Plan are: Salaried employees Cash-settled Annual appraisal by management in accordance with the group’s performance • Performance shares where value is created through growth or maintenance of returns management processes taking cognisance of the overall performance of the group and relative to competitors individual performance of the relevant division and employee. • Share appreciation rights where value is created through share price growth. Prescribed officers Cash-settled Assessed against a predetermined target for headline earnings per share, their relevant and senior division’s contribution to the group and other economic, social and environmental management targets and carrying a heavier weighting than TGP. Remuneration scenarios for executive directors at differing performance levels Executive directors Cash-settled Assessed based on the financial performance of the group against predetermined targets set by the board as well as personal scorecard objectives and carrying a heavier weighting than TGP. Below threshold TGP The key performance indicators on which evaluations are based are as follows: Financial: (70% weighting) Up to • Operating profit Threshold TGP 100% of TGP • Headline earnings per share growth • Return on capital employed (ROCE) Up to Up to 100% of On target TGP • Cash generation 200% of TGP awarded shares

Personal: (30% weighting) (not limited to the following) Up to Up to 300% • Transformation Maximum TGP 400% of TGP of awarded shares • Safety and environmental • Leadership/relationships • Reputation Total guaranteed pay Short-term incentives Long-term incentives

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REMUNERATION REPORT CONTINUED

EXECUTIVE DIRECTORS AND SENIOR MANAGEMENT’S REMUNERATION IMPLEMENTATION REPORT Senior management, including executive directors, receive remuneration appropriate to their scope of responsibility and contribution to This section of the report explains the implementation of the remuneration policy by providing details of the remuneration paid to operating and financial performance, considering industry norms, external market and country benchmarks. The annual packages of executives and non-executive directors for the financial year ended 30 June 2019. senior management include a guaranteed base salary and benefits as well a variable portion including short-term cash and long-term cash or share incentives. GUARANTEED PAY ADJUSTMENTS Taking into consideration the prevailing market conditions, affordability, shareholders’ expectations and performance, the Remuneration GUARANTEED PAY committee approved inflationary increases for South African senior management and executives of 6% (FY2018: 5,5%). The average Guaranteed pay levels of executive directors and senior management are deliberately set below the median level of comparable executive increase for the remainder of employees in South Africa was 6% (FY2018: 6,5%). guaranteed remuneration within the construction industry in order to prevent large gaps in salary developing between executive directors and key senior operational management. It is the belief of the group that such gaps (often found in other companies) are counter-productive in a Senior management in Australia received average increases of 5,1% (FY2018: 0,3%), while the remaining employees received average construction company where working as a cohesive team is crucial to success. increases of 3,6% (FY2018: 4,1%). Senior management in the United Kingdom (UK) received average increases of 6,1%, while the remaining employees received average increases of 4,3%. VARIABLE PAY Performance-based variable pay carries a significantly heavier weighting than guaranteed pay particularly when rewarding the operational The committee is satisfied that the appropriate salary adjustments have been done to place the organisation’s remuneration levels performance of senior directors and key management, with the result that short-term incentives can form the major portion of their total in line with best practice and its remuneration philosophy. remuneration, although their total remuneration (guaranteed and variable pay in combination) is aligned with industry norms. The remuneration scenario’s for executive directors at difference performance levels are reflected in the diagram below.

Below is an illustration of the different potential outcomes on the total remuneration for the Chief Executive Officer, when applying the EMPLOYEE BENEFITS various targets for both STIs and LTIs to the financial performance of the group for the year ended 30 June 2019: R’000 2019 2018

Maximum performance incentive STI LTI Salaries and wages 5 150 401 4 077 240 Benefits and other contributions 615 581 581 833 Threshold 100% of TGP 0% to 99% of awards 5 765 982 4 659 073 On target 200% of TGP 100% to 299% of awards Maximum 400% of TGP 300% of awards The increase is due to the inclusion of the UK subsidiaries, Byrne and Russells. The maximum potential award for each target has been applied in calculating the amounts below. Total STIs paid during the year (including amounts paid to directors and prescribed officers) have been based upon the performance of Threshold Target Stretch the group’s audited results for the year ended 30 June 2019 and amounted to R439 million (FY2018: R421 million). R’000 R’000 R’000 EXECUTIVE DIRECTORS’ AND PRESCRIBED OFFICERS’ EMOLUMENTS Chief Executive Officer The table below summarises WBHO’s executive directors’ and prescribed officers’ remuneration for FY2019. TGP 3 150 3 150 3 150 STI 3 150 6 300 12 600 2019 2018 Performance shares (offer 2015) – 3 907 11 722 Vested Vested Share appreciation rights (offer 2014)1 – – – R’000 TGP STI LTI 5 Total TGP STI LTI Total

Total 6 300 13 357 27 472 Executive directors MS Wylie1 2 028 3 042 – 5 070 1 957 5 522 – 7 479 1 Two-thirds of this allocation are subject to vesting as the HEPs hurdle was achieved in prior year, but have not been exercised by the participants. EL Nel2 3 151 4 505 11 722 19 377 2 981 7 382 8 769 19 132 CV Henwood 3 039 4 286 10 510 17 836 2 873 7 028 8 307 18 208 CONTRACTS AND RESTRAINTS OF TRADE 8 218 11 833 22 232 42 283 7 811 19 932 17 076 44 819 The service contracts of executive directors are on the same terms as the standard contracts of employment of the group and do not Prescribed officers contain any additional termination of employment obligations, restraint of trade or clawback provisions. PJ Foley3 10 089 3 750 10 510 24 349 7 367 7 000 8 307 22 674 SN Gumede 2 310 1 800 – 4 110 1 785 2 200 – 4 273 NON-EXECUTIVE DIRECTOR FEES EA Mashishi 2 365 2 000 6 468 10 833 2 201 3 500 4 615 10 316 The remuneration of non-executive directors is based on proposals from Remco, which are reviewed annually and submitted to the board RM Smith4 2 774 5 500 10 510 18 784 2 622 6 700 8 307 17 629 for approval. Non-executive directors sign letters of appointment with the company. S Vally-Kara 1 733 800 2 830 5 363 1 588 900 2 308 4 796 TR Armstrong – – – – 1 706 – – 1 706 Remuneration is compared with that of selected peer companies on an annual basis and recommendations are then submitted to the board for approval. Non-executive remuneration is determined and paid quarterly, based on an annual fee. A non-attendance penalty is deducted for 19 271 13 850 30 318 63 439 12 526 20 300 23 537 61 394 non-attendance at any meeting. Any additional time spent on company business is paid at a fixed hourly rate. 27 489 25 683 52 550 102 375 20 337 40 232 40 613 106 213

Fees are approved annually on this basis at the annual general meeting and apply with effect from 1 October of that financial year. 1 Retired as Executive Chairman with effect from 20 November 2019. 2 Appointed as Executive Chairman with effect from 20 November 2019. Any travel and accommodation expenses of non-executive directors are not included in the fees and are paid by WBHO. 3 PJ Foley has been seconded to the United Kingdom and is remunerated in pounds sterling. 4 RM Smith retired on 30 June 2019. 5 The performance shares allocated in December 2015 vested during the year and are equity-settled. The value reflected is the value of the shares on vesting date. Further disclosure on the LTIs can be found on page 110.

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REMUNERATION REPORT CONTINUED

SHORT-TERM INCENTIVES Performance shares The financial targets set by the board for FY2019 in respect of each key performance indicator as well as the performance against these The shares contain a full value element, essentially having no strike price and vest on the third anniversary of the award. The number of targets are disclosed in the table below: shares that vest will depend on the extent to which the specified criteria are met over the three-year measurement period.

ROCE is a measure of the group’s profitability and the efficiency with which its capital (equity plus borrowings) is employed. Targets 2019 2018 Total shareholder return (TSR) is calculated as the increase in value of a portfolio of shares, including dividends received, over the period KPI Threshold Target Stretch Threshold Target Stretch that the performance shares are held. TSR is measured against a comparative peer grouping consisting of Aveng, Basil Read, Group 5, Operating profit (Rm) 1 045 1 206 1 387 1 038 1 201 1 382 Murray & Roberts, Raubex, Stefanutti Stocks, Hudaco, Barloworld and Pretoria Portland Cement. HEPS growth (%) 0 6,6 9,6 – 6,6 9,6 The targets for each performance criterion are set by the board and are disclosed in the table below: ROCE (%) 17,5 20,0 24,0 17,5 20 24 1 Cash generation (Rm) 5 414 5 523 5 685 5 546 5 656 5 823 Performance criteria Weighting Threshold Target Stretch

1 Cognisance of the UK cash outflow in respect of the acquisition was taken into account when determining the cash target approved by Remco for 2019. ROCE 50% 14% 16% 20% Adjusted ROCE (applicable to allocations from December 2016 onwards) 50% 14% 19% 23% Performance TSR 50% 7th position 5th position 2nd position 2019 2018 Potential award 0% – 99% 100% – 299% 300% KPI Results Result achieved Score (%) Score (%) of TGP of TGP of TGP Operating profit (Rm) 561 Not achieved – 25 HEPS growth (%) (34) Not achieved – 41 Actual performance against the criteria at 30 June 2018 (Offer 2015) and 30 June 2019 (Offers 2016, 2017 and 2018): ROCE (%) 12,4 Not achieved – 41 Offer 2015 Offer 2016 Offer 2017 Offer 2018 Cash generation (Rm) 5 952 Stretch 42 42 Performance Performance Performance Performance Total score 42 149 Performance criteria shares shares shares shares

Maximum attainable score 280 280 ROCE 22,6% 18,2% 16,1% 12,4% TSR 1st 5th 5th 5th Result The total scorecards for each executive director are disclosed in the table below: Threshold Threshold ROCE Stretch exceeded exceeded Not achieved Personal Financial Total Maximum Actual STI Actual STI TSR Stretch Target Target Target KPI scorecard scorecard % score % of TGP per score awarded Award 300% 92% 71% 50% EL Nel 101 42 143 400 4 505 4 505 CV Henwood 99 42 141 400 4 286 4 286 Long-term incentives vested during the year MS Wylie 108 42 150 400 3 042 3 042 Performance shares

Offer 2015 While the percentages may appear above market norms, the stakeholders are reminded that TGP is deliberately set below the median which Vesting price R134,74 necessitates a higher STI percentage. The actual STI awarded as a percentage of the maximum potential award is approximately 36,0%. Award date 7 December 2015 Vesting date 7 December 2018 LONG-TERM INCENTIVES Achieved 300% of awarded shares vested During the year 146 500 (FY2018: 136 000) share appreciation rights and 141 000 (FY2018: 130 000) performance shares were allocated to executive directors, prescribed officers and key members of management. Number of Number of Value of shares Share appreciation rights awards vested shares at vesting date Share appreciation rights vest in equal tranches over three years and may be exercised on the third, fourth and fifth anniversaries from the Executive directors time of allocation, but need not be exercised until the seventh anniversary. On settlement, the value accruing to participants is the full EL Nel 29 000 87 000 11 722 380 appreciation of the share price over the vesting period. CV Henwood 26 000 78 000 10 509 720 The performance target hurdle is the average growth in adjusted headline earnings per share (HEPS) compared against the average CPI Prescribed officers plus 3%. The average calculation is determined annually in three-year cycles. At 30 June, the hurdle criteria for the 2016, 2017, 2018 and PJ Foley 26 000 78 000 10 509 720 S Vally-Kara 7 000 21 000 2 829 540 the final third of the 2014 tranches had not been met. RM Smith 26 000 78 000 10 509 720 Share price on Share price at EA Mashishi 16 000 48 000 6 467 520 Threshold Actual allocation date 30 June 2019 Tranche (cents) (cents) (R) (R) Result Total 130 000 390 000 52 518 600 20141 1 708,16 932,3 115,40 109,89 Hurdle not achieved 2016 1 708,16 932,3 147,47 109,89 Hurdle not achieved 2017 1 533,18 932,3 146,76 109,89 Hurdle not achieved 2018 1 528,79 932,3 143,00 109,89 Hurdle not achieved

1 Two-thirds of this allocation are subject to vesting as the HEPs hurdle was achieved in prior year.

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Awards vested during Offer 20142 Offer 2015 Offer 2016 Offer 2017 Offer 2018 the year Total

Award price R115,40 R118,41 R147,47 R146,76 R143.00 Award date 2015/03/16 2015/12/07 2016/12/07 2017/12/07 2018/12/13 Vesting date – Performance shares – 2018/12/07 2019/12/07 2020/12/07 2021/12/13 Vesting period – Share appreciation rights From 2019/03/16 N/A From 2019/12/07 From 2020/12/07 From 2021/12/13 to 2022/03/16 N/A to 2023/12/07 to 2024/12/07 to 2025/12/13 Threshold met at 30 June 2018 – 300% 92% 71% 50%

Number of Fair Market Market Market Market awards at value at Number of Number of value at Number of value at Number of value at Number of value at Number of 30 June 30 June Name awards awards issue date awards issue date awards issue date awards issue date awards 2019 20191

Executive directors

EL Nel Performance shares – 29 000 3 433 852 17 500 2 580 725 19 000 2 788 440 17 000 2 431 000 (29 000) 53 500 5 879 115 Share appreciation rights 20 000 – – 17 500 – 20 000 – 18 500 – – 76 000 –

CV Henwood Performance shares – 26 000 3 078 626 16 000 2 359 520 18 000 2 641 680 16 000 2 288 000 (26 000) 50 000 5 494 500 Share appreciation rights 19 000 – – 16 000 – 18 000 – 17 500 – – 70 500 –

Prescribed officers

PJ Foley Performance shares – 26 000 3 078 626 16 000 2 359 520 18 000 2 641 680 16 000 2 288 000 (26 000) 50 000 5 494 500 Share appreciation rights 19 000 – – 16 000 – 18 000 – 17 500 – – 70 500 –

RM Smith Performance shares – 26 000 3 078 626 16 000 2 359 520 18 000 2 641 680 – – (26 000) 34 000 3 736 260 Share appreciation rights 19 000 – – 16 000 – 18 000 – – – – 53 000 –

EA Mashishi Performance shares – 16 000 1 894 539 10 000 1 474 700 11 000 1 614 360 12 000 1 716 000 (16 000) 33 000 3 626 370 Share appreciation rights 11 000 – – 10 000 – 12 000 – 13 000 – – 46 000 –

SN Gumede Performance shares – – – – – – – 6 000 858 000 – 6 000 659 340 Share appreciation rights – – – – – – – 6 000 – – 6 000 –

S Vally-Kara Performance shares – 7 000 828 861 4 000 589 880 5 000 733 800 5 000 715 000 (7 000) 14 000 1 538 460 Share appreciation rights 5 000 – – 4 000 – 5 000 – 4 000 – – 18 000 –

Total performance shares awarded – 130 000 15 393 131 79 500 11 723 865 89 000 13 061 640 72 000 10 296 000 (130 000) 240 500 26 428 545 Total share appreciation rights awarded 93 000 – – 79 500 – 91 000 – 76 500 – – 340 000 –

Total awards 93 000 130 000 15 393 131 159 000 11 723 865 180 000 13 061 640 148 500 10 296 000 (130 000) 568 500 26 428 545

1 The thresholds achieved at 30 June 2019 have been used to calculate fair value. Offers 2017 and 2018 have yet to vest therefore the percentages used in the calculation of fair value may be different to those at the vesting dates. 2 Two-thirds of this allocation are subject to vesting as the HEPs hurdle was achieved in prior year, but have not been exercised by the participants.

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NON-EXECUTIVE DIRECTORS’ REMUNERATION DIRECTORS’ AND PRESCRIBED OFFICERS’ SHAREHOLDING WBHO compensates and remunerates non-executive directors in a manner which enables it to attract and retain high-calibre and 2019 2018 professional directors to ensure that the board has the necessary skills required to execute on its mandate. Fees are determined by ’000 Direct Indirect Total Direct Indirect Total Remco and ratified by the main Board and shareholders. Fees payable for the year are reflected below. Executive directors R’000 2019 2018 MS Wylie^ – 522 522 – 522 522 EL Nel 340 1 341 291 1 292 AJ Bester 630 415 CV Henwood 106 – 106 66 – 66 KM Forbay 484 379 RW Gardiner 906 814 446 523 969 357 523 880 NA Matyumza – 441 Non-executive directors+ SN Maziya 819 552 NS Maziya+ – 240 240 – 237 237 JM Ngobeni – 69 – 240 240 – 237 237 H Ntene 556 364 Prescribed officers 3 395 3 034 PJ Foley 102 – 102 76 – 76 RM Smith 90 – 90 47 – 47 # Fees are annually considered and approved by shareholders at the AGM. Voting at the last three AGMs are reflected below. EA Mashishi 37 – 37 – 118 118 S Vally-Kara 20 – 20 8 – 8

Votes 249 – 249 131 118 249 Non-executive directors’ fees Votes for Votes against abstained 695 763 1 458 488 878 1 366 21 November 2018 98,12% 1,66% 0,01% 23 November 2017 98,93% 1,07% 0,45% ^ The indirect shares are held in trusts in which the director has no beneficial interest. 16 November 2016 100,00% – 0,11% + Indirect shares disclosed in the above table represent allocated shares in respect of the empowerment initiative of the group and do not represent the number of shares likely to vest upon fulfilment of the vesting conditions. The number of WBHO shares that will ultimately vest is dependent on the market value of the shares on the vesting date, based on a predetermined threshold. Using the share price at 30 June 2019, the director would receive no shares in terms of the formula. The average percentage increase proposed for directors’ fees is 6,0% (FY2018: 6,0%). The proposed fees for non-executive directors in # EA Mashisi has 33% (FY2018: 33%) interest in Edwin Construction (Pty) Ltd. respect of FY2020 are disclosed below. OTHER LONG-TERM INCENTIVE SCHEMES 2020 2019 The table below provides details of long-term incentives awarded to employees other than directors and prescribed officers. Lead independent director 373 700 352 500 WBHO Non-executive director 234 000 220 700 Management Black Chairman of Audit committee 354 700 334 600 ’000 Trust Partners Employees Chairman of Risk committee 173 400 163 500 Chairman of Remuneration committee 173 400 163 500 Total shares/options allocated 1 013 720 1 397 Chairman of Social and ethics committee 173 400 163 500 Allocations/issues in the current year – – 435 Committee members (per meeting) 32 350 30 500 Dividend shares purchased n/a 8 20 Vested in the current year – (18) (75) Shares purchased 24 – – Share to be bought back – – (682) Shares available for future allocations 2 278 – 678

Further details in respect of the above schemes are available online in the consolidated annual financial statements under the investor section of the company’s website at www.wbho.co.za/investors.

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Financial year end 30 June

Abbreviations and acronyms Final results announced September Integrated report published October B-BBEE Broad based black empowerment Interim results announced February Black African, Indian and Coloured DIVIDEND GDP Gross domestic product INTERIM HEPS Headline earnings per share Approved February Payable April IFRS International Financial Reporting Standards FINAL IT Information technology Approved August Payable October LTI Long-term incentives

King IVTM King Report on Corporate Governance for South Africa, 2016

LTIFR Lost-time injury frequency rate

RCR Recordable case rate

ROCE Return on capital employed

SANRAL South African National Roads Agency

SED Socio-economic development

SOE State-owned entity

STI Short-term incentives

TGP Total guaranteed package

TSR Total shareholder return

VRP Voluntary rebuild programme

Financial definitions

Current ratio Current assets/current liabilities

Gross profit margin Gross profit/revenue

Market capitalisation Number of issued shares x close share price at year end

Net profit margin Net profit/revenue

Net working capital Sum of inventory and trade receivables less trade payables

NPAT Net profit after tax

Solvency ratio (Current assets less cash and cash equivalents)/current liabilities

116 WBHO Integrated Report 2019 WBHO Integrated Report 2019 117 NOTES STATUTORY INFORMATION

WILSON BAYLY HOLMES-OVCON LIMITED (Incorporated in the Republic of South Africa) Registration number 1982/011014/06 Share code: WBO ISIN: ZAE00009932 (WBHO)

REGISTERED OFFICE AND CONTACT DETAILS 53 Andries Street Wynberg, Sandton, 2090

PO Box 531 Bergvlei 2012

Telephone: +27 11 321 7200 Fax: +27 11 887 4364 Website: www.wbho.co.za Email: [email protected]

COMPANY SECRETARY Shereen Vally-Kara ACIS

AUDITORS BDO South Africa Incorporated

TRANSFER SECRETARIES Computershare Investor Services (Pty) Ltd Rosebank Towers 15 Biermann Ave Rosebank Johannesburg 2196 South Africa Telephone: +27 11 370 5000 Fax: +27 11 370 5271

SPONSOR Investec Bank Limited

118 WBHO Integrated Report 2019